Realities of retirement renting need more discussion
His concerns are echoed by Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, who says it is important that UK workers get to grips with the changing landscape of home ownership because many retirement projection tools are based on someone having paid off their mortgage by the time they retire.
She says: “The prospect of renting through retirement is not discussed enough and people don’t factor it into their retirement savings plans.
"The Pensions and Lifetime Savings Association’s retirement income targets give an idea for how much people need in retirement to live a certain lifestyle, but they also note that they are based on someone having paid off their mortgage by the time they retire.
"If we factor rent into the equation then people will need thousands of pounds more each year and so will need to save significantly more into their pensions as a result. With home ownership decreasing it is a difficult reality that more people will need to get to grips with.”
The findings by the PPI were published last month in its report "Renting in Retirement – The Fault Line Below the UK Pension System", which was released in association with Aviva.
The PPI warned that few renters will have enough savings to cover both the cost of living and cost of renting in later life and estimates that 400,000 households could become dependent on income-related pensioner benefits.
The report marks the first time that the PPI UK pensions framework has been used to model the impact of a ‘what if’ scenario on future retirement outcomes and explored the risks that falling home ownership, rising private renting and shrinking social housing sector could pose to the retirement outcomes of those nearing pensionable age.
Anna Brain, research associate at the PPI, says it is time for the industry to update its outdated view that most people will own their homes once they retire.
She adds: “The research reveals a series of increasingly outdated assumptions around how future pensioners work, live and save for retirement is putting strain on the overall UK retirement income model and on the very fabric of the UK pension system.
"The expectation that people will reach retirement with high rates of home ownership, supported by an adequate supply of social housing, is one of them.”
IFA Haresh Raghwani agrees that advisers should not assume their clients will own their home when they reach state retirement age because affordability means people still have a mortgage when they are 75-years-old.
