Scottish Widows has wanted that over-50s renters are not saving anywhere near enough to cover their rental costs in retirement, leaving a £43 billion shortfall.
The projections, calculated for Scottish Widows by Development Economics, predict that one in eight retirees, equating to over one million people, will be living in rental accommodation in 15 years, treble the current number, and 42% of the average retirement income will be spent on rent.
The average renter planning to retire in 15 years’ time needs to save an additional £525 every month into their pension – £6,300 a year – on top of current pension contributions, or work for an additional 5.1 years to cover growing rental costs in retirement.
Despite this, 67% of 50-64 year olds planning to rent in retirement have no plans to increase their pension contributions to cover this shortfall. 68% of those who would consider upping their contribution say they cannot afford to do so without a pay rise or significant compromise elsewhere.
As the surge in prices becomes increasingly unmanageable in London and demand for property in surrounding regions grows, pressure is expected to spread to the South East and East of England. In comparison, Northern regions and Wales will remain the most affordable.
Renters across the country are also considering relocating for cheaper rent. 39% of people planning to rent in retirement would relocate – rising to 65% in London, where rental prices continue to skyrocket.
The situation is set to worsen, as more people struggle to step onto the property ladder. 27% of renters under the age of 45 don’t think they will ever be in a position to buy a property. Even among those who hope to buy a house one day, 15% anticipate they will still be paying off their mortgage well into retirement, rising to 26% of 25-34 year olds.
Robert Cochran, retirement spokesperson at Scottish Widows, said: “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 15 years, but alarmingly few people are thinking about how they would cover the growing cost of a property lease when they stop working.
“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.”
Douglas Cochrane, head of housing development, Lloyds Banking Group, said: “As this report recognises, renting in retirement can be a conscious choice and when making such a choice it is important that all financial implications for paying rent into retirement are fully understood. The importance of saving through pensions or other investments to offset later in life rental costs cannot be underestimated.
“The white paper Fixing Our Broken Housing Market published in February 2017 refers to meeting the needs of an ageing population through appropriate housing provision. This report recognises not only the financial need, but importantly the need to build the right type of property suitable for later in life living.”
Dan Wilson Craw, director, Generation Rent, added: “The common perception is that retirees either own their home outright or have a council tenancy, so the government will be in for a nasty shock as more of us retire and continue to rent from a private landlord. Many renters relying on pensions will qualify for housing benefit which will put greater strain on the public finances.
“The government can prepare for this by ensuring it delivers on its plans for 300,000 homes a year in order to bring rents down. More people facing a lifetime of renting also makes it essential that we make tenancies more secure to give tenants more stability in their lives.”