Falling levels of home ownership are opening a fault line under the retirement income security of more than a million pensioner households with the proportion in private rented housing set to triple, a new report from the Pensions Policy Institute (PPI) warns.
PPI analysis shows the proportion of households who own their own home in retirement could fall from 78 per cent to 63 per cent, the proportion living in the private rental sector could rise from 6 per cent to 17 per cent, and the proportion in social housing would remain unchanged.
Falling home ownership, a sharp rise in private renting and a shrinking social housing sector pose a significant threat to the retirement adequacy of the growing number of those facing housing costs in retirement.
The data comes from the PPI’s UK pensions framework, a long-term project established in partnership with Aviva to create a multi-year analysis tool to monitor the ongoing effectiveness of the UK pensions system.
The report finds that the number of households renting in retirement could rise to 3.6 million, of whom 1.7 million would live in the private rented sector, around 1.2 million more than today .
Very few renters would have adequate savings to cover both the cost of renting and cost of living through later life. A couple aged 45-64 today on median income may need to double their total assets or more if they are to privately rent even a one-bedroom flat outside London through later life. The PPI wants 400,000 more households could become dependent upon income-related pensioner benefits, at a time when renewed concerns over the sustainability of the benefit system, including the freezing of the Local Housing Allowance, are prompting uncertainty over the extent to which the State might intervene to support people with living costs through later life.
The decline in homeownership could drive an increase in rates of relative and absolute poverty among pensioners of 2 per cent, with an additional 170,000 households outside London could be precluded from meeting minimum living standard targets in retirement, of whom more than two thirds live on their own.
While there is some geographic variation in the scale of the problems, trends towards higher levels of private renting among households aged 45-64 are consistent across the country. The changes largely impact low-to-middle-income households, those already at greatest risk of wealth inequality and poor retirement outcomes.
Anna Brain, research associate at the Pensions Policy Institute says: “By 2041, up to 1.7 million or 17 per cent of pensioner households could be renting privately through retirement. That’s more than three times as many households as today, of whom only a minority of those with the highest incomes might have the means to cover the cost of renting through later life. The increase is caused by years of falling home ownership and a shrinking social housing sector, which together mean that more people are approaching retirement without the secure and affordable housing tenure assumed of them in later life.”
Michele Golunska, managing director for wealth and advice, Aviva says: “The findings from this report serve as an important reminder to the pensions industry that to ensure savers have the comfortable retirements they are working towards, we must consider their overall financial circumstances – which, of course, includes housing.
“We continue to find that pension savers feel they lack sufficient knowledge and the tools required to navigate their options in the run-up to and transition into retirement. This makes it more important than ever that they are empowered to make informed decisions about how to maximise later life income. Improving our understanding of differences in financial circumstances will help the pensions industry develop better solutions for savers.”