Intervention is needed to halt ticking time bomb
‘Generation Rent’ is facing a ticking time bomb in later life and could be forced to move out of towns and cities in later life to find more affordable housing, according to a new report by the International Longevity Centre (ILC).
David Sinclair, chief executive of the ILC, observed: “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.”
Home ownership is reducing significantly as people are priced out of the market, with house prices doubling for first time buyers, according to the government’s UK House Price Index.
The upshot is a future grey-haired generation of renters. The number of over-65s living in rented accommodation is predicted to double to 13% by 2040, the ILC says. Across England, the average cost of renting through a 20-year retirement would be an additional £317,000, but the cost of renting in London would be £633,220.
At the same time, pension adequacy is a concern. Defined benefit (DB) pension provision has sharply declined, with only six percent of DB schemes open to new members. Meanwhile, 14 million people are saving into defined contribution (DC) schemes, but many are not saving at rates which will give them a comfortable retirement.
The report, The future of ageing in an uncertain world, recommends that the government sets out a roadmap for increasing default contribution rates into workplace pensions, and widens access to those who are not covered by auto-enrolment.
The government should also review housing regulation to ensure it facilitates the building of affordable homes that help people live well in retirement.
Morten Nilsson, CEO of Brightwell, which commissioned the report, said: “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.”
Dr Vivien Burrows, ILC’s senior research fellow and report author, added: “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.”
Adding fuel to the fire
The ILC’s report is the latest in a series of reports which seek to put pensions into the context of people’s overall financial circumstances, while also focusing on their other main source of wealth: housing.
It adds to existing calls to set out a roadmap for a more adequate pensions system by cross-industry group the Lifetime Savings Initiative (LSI), which is led by Schroders and the Pensions Management Institute.
The LSI also argues that the UK’s long-term savings system is unusually inflexible compared to that of other countries and has put forward several suggestions for reform. One is allowing people to access some of their money to buy their first home, or to pay off debt in certain circumstances. Another is to encourage people to build a ‘rainy day’ savings pot through their employer.
Reports on this subject are unanimous: without policy intervention, the government risks creating a ticking time bomb for a future generation of retirees.
Taking automatic enrolment beyond pensions - Defined Contribution - Pensions Expert
