Older savers face a looming financial crisis, as declining homeownership, rising rent and inadequate pensions could push them out of towns and cities, limiting access to essential services in later life.
The International Longevity Centre (ILC) has launched the report “The Future of Ageing in an Uncertain World,” commissioned by Brightwell to understand the future needs of ageing pension scheme members. The report discusses how ageing and retirement will change for younger and pre-retirement generations, who may be forced out of urban areas due to unaffordable rents and inadequate pension provisions.
The average state pension is insufficient to meet rent expenses, especially in London. Retirement renters in England may need an extra £317,000 over 20 years, with prices in London reaching £633,220.
The percentage of people between the ages of 35 and 44 who own a home has decreased from 62 per cent in 2007 to 50 per cent in 2017. Additionally, it is anticipated that by 2040, 13 per cent of those 65 and older will live in private rentals, a twofold increase.
According to the analysis, many older individuals would have to work longer hours to support themselves, particularly if defined-benefit pension plans become less popular.
Increasing pension contribution rates, making housing more affordable, and encouraging communal living are some of the recommendations. Lifelong learning, flexible work schedules, and technology are also thought to be essential for promoting safer and healthier senior years.
The ILC warns that if immediate action is not taken, wealth and housing disparities will widen and might undo recent gains in lowering pensioner poverty.
The Pensions Regulator CEO Nausicaa Delfas states that around 12.5 million people are under-saving for retirement despite automatic enrolment, due to longer lifespans and cost of living pressures with many individuals avoiding professional advice and relying on uninformed sources, underscoring the need for collaboration to ensure successful retirement outcomes.
Delfas says: “Automatic enrolment has created a nation of savers, with more than 8 in 10 workers now investing in a workplace pension. But government research suggests that 12.5 million are under-saving for their retirement. This complex picture means that many are wondering if future generations will have enough income to support themselves in older life. What we need now is consensus across industry, government, and regulators to shape the future of successful retirement outcomes for all.
“I really welcome this report, which comes at a really significant moment in the world of pensions. With an ongoing pensions review and forthcoming bill, this is a unique opportunity for us to collectively…think about how to make pensions work better for savers and what is the challenge facing us.”
ILC chief executive David Sinclair says: “Future generations of pensioners are more likely to be renters than homeowners. At the same time, more of us will be living alone and poverty in old age is likely to increase.
Towns and cities are ideal places for us as we grow older, with access to a whole range of services but older renters won’t be able to afford to live in towns and cities, where the facilities they need will be.”
Brightwell CEO Morten Nilsson says: “There’s a growing inequality in retirement. Homeowners with final salary pension schemes will fare much better than renters with DC only savings, or no pension savings at all, who face a ticking time bomb.
“It’s important that this inequality is acknowledged, and that pension policy reflects this changing reality. The government is looking at pension adequacy as part of its Pensions Review which is critical for future generations. The previous government also consulted on proposals to allow surpluses built up in DB schemes to be returned to sponsors and potentially re-distributed to DC savers. Initiatives like that could be helpful but aren’t a silver bullet.
“Product providers and pension schemes also think about ways to build more flexibility into the products they offer to make it easier for people to both work for longer and work when they are accessing their pension.”
Burrows says: “We don’t have a crystal ball (yet), but we can clearly see the increasing risk of wealth inequalities ahead. We know more people will be renting later in life, and these figures illustrate the burden this will place on their finances. The people more likely to be renting after retirement are those on lower incomes, who are already more exposed to the risk of financial hardship in later life. We’ve made significant gains in tackling pensioner poverty over the last 20 years, but we now risk reversing this progress.”
“The mood music around the Renters’ Rights Bill and the Pensions Review point in the right direction but there’s a danger the government machine remains in siloes. We can no longer look at issues in isolation but need a holistic approach to housing, financial security, healthcare and work. If we start now, we can turn the challenges of ageing into opportunities for a healthier, more connected, and fulfilled future.”