Just after the Chancellor announced a series of measures in his Autumn 2017 Budget to tackle the growing and widely recognised problem of getting the younger generation onto the property ladder, Scottish Widows have published the results of their research. It highlights that the problem of home ownership extends far beyond this group. In fact the rising cost of renting is becoming a growing issue for people in retirement.
“Generation Rent is a term often applied to younger generations, but our research shows that the problem extends right to the other end of the generational scale. The number of people renting in retirement is set to treble over the next fifteen years, but alarmingly few people are thinking about how they would cover the growing cost of a property lease when they stop working” – Renting in Retirement, Scottish Widows.
The research by Scottish Widows, undertaken in conjunction with forecasting experts Development Economics, found that in 15 years:
- one in eight retirees will live in rented accommodation,
- an alarming 42% of the average retirement income will be spent on rent (rising to 80% for those people living in London).
This has become a major consideration when pension planning for renters who face retirement in the next 15 years. The report states that, “over-50s renters face £43bn shortfall in pension savings during retirement”.
Save more now or delay retirement?
The report highlights that renters with 15 years to retirement will need to save an additional £525 each month (£6,300 per year), on top of current pension contributions to cover the cost of renting in retirement. Alternatively they will need to work for an additional 5.1 years at current saving levels. Yet 67% of renters aged 50-64 years old who plan to rent in retirement say they have no plans to increase their pension contributions. And 68% of those who plan to rent in retirement say they could only increase contributions if they sacrificed elsewhere.
Younger generations are also described as a “ticking time bomb” as they struggle to get onto the property ladder. The report states that;
- 27% of renters under the age of 45 don’t think they will ever be in a position to buy a property,
- 15% of those under 45 think they’ll be paying their mortgage well into retirement, and
- 26% of 25-34 year-olds think they will be paying off a mortgage well into retirement.
Scottish Widows argue, “Few people are taking the need to pay rent into consideration when planning for retirement, and may be expecting support from friends, family or the Government to cover this gap.”
The report makes a number of recommendations, including providing more structured support, through awareness campaigns and tailored financial and practical advice. This should include “advice on calculating an adequate level of saving to cover this additional cost”.
This report adds further fuel to the general argument that many people are not currently saving enough for their retirement.