According to a recent study, people who end up renting in retirement will have to save staggering sums to fund modest accommodation and living costs. It would take a pension pot of £269,000 alone to generate around £9,500 per year, the median rent on a two-bedroom property in the UK. That is on top of the £348,000 pot plus a full state pension needed to achieve a “moderate” £23,300-a-year income after tax to live on in old age. In this article, we will explore why renting in retirement can be financially challenging and how it can affect people’s pensions.
Official data reveals that nearly five million adults are still living with their parents, and many of them may never afford a property and pay off a mortgage. Soaring house prices, financial pressures, and caring duties are keeping families under the same roof for longer. With younger generations finding it harder to get on the housing ladder, the assumption that people in retirement will have paid off their mortgage and can manage on much less than when they were in work may no longer be valid.
According to former Pensions Minister Steve Webb, it is essential to look at people’s whole situation, including any housing costs, to help them make realistic plans for the future. There is a real risk that, at least in part, people’s pensions will end up having to pay for housing costs as well as everyday living costs. More than half of all new mortgages taken out by first-time buyers now last over 30 years, and with young people taking longer to get on the property ladder, these mortgages could easily take them beyond pension age. People who end up renting in retirement will have to save a significant amount of money to fund their accommodation and living costs.
Rent or mortgage payments, social care costs, and income tax are not included in the standard industry measure of what people require for a minimum, moderate, or comfortable retirement. The standard measure says individual incomes of £12,800, £23,300, and £37,300 a year are needed for basic, decent, and comfortable lifestyles in retirement, respectively. For a couple, the figures are £19,900, £34,000, and £54,000. However, these figures assume that retirees are living rent or mortgage-free in their homes.
Government research published earlier this year showed that people likely to be renters in retirement are at much higher risk of under-saving compared with those who will own a home outright. This makes it all the more essential to save for retirement since people who end up renting in retirement might not be able to afford the necessary retirement income.
– The census figures show that the overall number of adults living with their parents jumped 15% to 4.9 million from 2011 to 2021.
– The full-rate state pension for people retiring since 2016 is currently worth £10,600 a year.
– More than half of all new mortgages taken out by first-time buyers now last over 30 years.
People who end up renting in retirement will have to save staggering sums to fund modest accommodation and living costs. The standard industry measure of what people require for minimum, moderate, or comfortable retirement does not include rent or mortgage payments, social care costs, or income tax. Given the high cost of renting, it is all the more essential to save for retirement and make realistic plans for the future.
According to recent research, a pension pot of £269,000 alone is needed to generate around £9,500 per year, the median rent on a two-bedroom property in the UK, in addition to the £348,000 pot plus a full state pension needed to achieve a “moderate” £23,300-a-year income after tax. With more adults living with their parents and younger generations struggling to get on the housing ladder, the expectation that people in retirement will have paid off their mortgage and can manage on much less than when they were in work may no longer be valid.
