There has been significant focus on the difficulties that young people face in getting on the property ladder. The banks are lending but the sheer size of deposits required have deterred many from even trying and these are resigned to renting accommodation instead.
Many in this growing group will not, however, have considered the long term consequences of renting without making provision for paying for their accommodation in retirement. A new retirement study by Scottish Widows on this subject reveals some alarming data.
The ‘Renters in Retirement’ report 2017 demonstrates that in only 15 years’ time, one in eight retirees will live in rented accommodation – triple today’s number. As a result, it is estimated that there will be a staggering £43 billion shortfall in pension savings to pay for rental costs.
The average renter will need to save £525 every month in addition to their current pension contributions; but 67% of respondents aged 50-64 years old who plan to rent in retirement say they have no plans to increase their pension contributions. No wonder the report calls renting in retirement a ‘ticking time bomb’.
To give this some perspective, the proportion of retirement income spent on rent in the UK is 42% with London, unsurprisingly, at the top of the league table with 80% and Wales the lowest at 24%. Out of the 12 regions listed, the South West is the fifth most expensive with 33% of retirement income going on rent.
Scottish Widows recommend the government takes early action to support renters and that includes delivering on the projected 300,000 new built homes each year which will put roofs over more heads and help bring rents down. The alternative will see the huge increase in retirement renters putting unprecedented and very costly pressure on the benefits system.
Robert Cochran, Retirement Expert at Scottish Widows said: “Whilst some people may choose to rent later in life, we also need to ensure it’s a more sustainable, secure option for an ageing population – many of whom will have no choice. We’re therefore urging the Government to consider ways to refine the housing market to better suit older renters through options such as open ended tenancy, with predictable rents and protection.”
The Scottish Widows report also recommends an awareness campaign to help renters heading for retirement who will need to ensure they are prepared, financially and practically, for their future when dependent on a pension for income. This should include tailored financial and practical advice to ensure the security of generation rent in retirement.
As Chartered Financial Planners we can help renters prepare for a financially secure retirement by calculating an adequate level of saving to cover this additional cost and creating a financial action plan.
If anyone is concerned over this issue, call us for a no obligation chat with one of our qualified financial planners.