Rethink adequacy as one in three will rent in retirement – ABI
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A third of pensioner households could be renting by 2044 as almost 2m more people are expected to retire without owning a home, a new report has said. It suggests that policy may need to take an integrated approach to pensions, housing, benefits and social care.
The research published on Thursday warns that people’s median pension wealth of about £154,000 in their early 60s will fall far short of the cost of renting a private two-bed throughout retirement, which ranges from £200,000 to £400,000 depending on location. Most of the additional future renters, about 1.3m, will be in the private rented sector.
“We have made remarkable progress in expanding pension saving and reducing pensioner poverty. But the future will not be like the past,” said Yvonne Braun, director of long-term savings policy at the Association of British Insurers, which commissioned the report from the Pensions Policy Institute.
For previous generations, home ownership was a key element of a secure retirement. Braun said with more people renting, paying off a mortgage or living alone in older age, “we need to rethink what an adequate retirement looks like – and whether people are on track to achieve it”.
The report titled, ‘Pensions adequacy: housing, households and auto-enrolment', looks at housing costs, pension savings and household composition, finding that a generational shift in homeownership means current assumptions about pensioners having no housing costs no longer apply for many.
The trend is already becoming visible as the proportion of flat sharers aged 65 or older has tripled in the past 10 years. There has also been a 38% increase in over-65s taking in lodgers, the PPI has found.
Priya Khambhaita, PPI head of research, said: “With a greater share of retirees’ individual private pension wealth being eroded by ongoing housing costs throughout later life, this fast accelerating pension adequacy challenge is already being felt by some of today’s pensioners, and no single policy lever will be enough to address it in isolation.”
The PPI said that to reach renters, “pension policy levers alone are insufficient”, suggesting a package of both pensions and benefit reforms may be needed.
Such reforms include auto-enrolment, with the PPI listing a number of options, though it writes that “no single reform fully resolves AE’s adequacy limitations, suggesting layered policy approaches may be required”.
The options range from lowering the age threshold and removing the lower earnings limit, to increasing minimum contribution rates and carer credits. Tax relief changes and covering the self-employed are further policy choices the government could consider.
More structured support in decumulation could also improve outcomes, the PPI said, suggesting that the incoming guided retirement pathways should incorporate housing tenure, household composition and accommodation costs.
On the means-tested side, the PPI proposes making the eligibility criteria for benefits more flexible to account for household size and composition, replacing cliff-edge thresholds that currently penalise households pooling resources out of necessity.
People living alone are particularly at risk as they cannot share housing and household bills. Nearly a third (30%) of UK households are currently single person households; half of those living alone are aged over 65.
Living in shared households comes with its own risks, however. Where households break down, women’s retirement adequacy tends to be more impacted than men’s, the PPI said. It found that divorced women aged 60-64 have an average of just £35,000 in pension savings, less than a third of what divorced men have, and about half of married women’s pension wealth.
While most people (70%) retire within a two-person household, assessing adequacy at the household level can bring to the fore both hidden resilience and hidden vulnerability, the PPI said.
“The central question is not only how much saving should increase, but who most needs support, and how pension policy must interact with housing, social care, and the wider welfare system to deliver adequate retirement outcomes for all,” the report concludes.
