One in three pensioner households could be renting by 2044 according to the ABI’s latest report, Pensions Adequacy: Housing, Households and Auto-Enrolment. The research finds that nearly two million more people are expected to retire without owning their home, marking a major shift in how future generations will experience retirement.
Most of this growth will come from private renters, where the number of pensioners renting is projected to more than triple over the next twenty years, increasing by 1.3 million people.
The research, commissioned by the ABI and conducted by the Pensions Policy Institute (PPI), considers how rising housing costs, combined with low pension savings and changing household composition, could leave millions struggling to maintain living standards in later life.
Today's pension system has been built on the assumption that people will retire without housing costs. However, this analysis shows that a generational shift in homeownership means many will need to save more to cover expenses.
Renters face much higher costs in retirement than those who own their home outright. The analysis finds renting a two-bedroom home privately costs £200,000 - £400,000 throughout a person’s retirement. In comparison, the average person’s DC pension pot is £154,000, falling to £105,000 for women. This means that rental costs threaten to swallow a person's entire private savings, and the state pension would need to cover all other expenses.
There are already indicators of the pressure of housing costs for some older households. The report notes that the proportion of flat sharers aged 65 or older has tripled in the last decade, and there has been a 38% increase in over 65s taking in lodgers.
For single-person households, additional housing costs could be even more problematic. People living alone face higher living costs because housing and household bills can’t be shared. Approximately 30% of UK households are currently single person households, with half of these aged over 65. This trend is set to continue, raising the risk that tomorrow’s pensioners will struggle financially unless we improve saving levels.
The impact of living alone can be even more pronounced for women. Women’s retirement prospects are more seriously impacted by a breakdown of the household than men’s, with bereavement and divorce often leaving many with substantially weaker retirement finances. Divorced women aged 60-64 have an average of just £35,000 in pension savings, which is just over half of married women and under a third of divorced men. These figures would be eclipsed by average rental costs.
We have made remarkable progress in expanding pension saving and reducing pensioner poverty. But the future will not be like the past. For previous generations, home ownership was a cornerstone of financial security in retirement, but for many younger people it will no longer be the norm. With more people renting, paying off a mortgage, or living alone in older age, we need to rethink what an adequate retirement looks like – and whether people are on track to achieve it.
Dr Yvonne Braun
Director of Long-Term Savings Policy at the ABI
The PPI projects over one in three pensioner households will be renting by 2044, posing a significant challenge for retirement adequacy. With a greater share of retirees’ individual private pension wealth being eroded by ongoing housing costs throughout later life, this fast accelerating pension adequacy challenge is already being felt by some of today’s pensioners, and no single policy lever will be enough to address it in isolation. To improve retirement outcomes, the central question is not only how much saving should increase, but who most needs support, and how pension policy must interact with housing, social care, and the wider welfare system.
Dr Priya Khambhaita
Head of Research at the Pensions Policy Institute
Notes to editors
Full report here.
Pensions Adequacy: Housing, Households and Auto-Enrolment - research Methodology:
The housing chapter of the report uses the Family Resources Survey to model future housing tenure, assuming current pensioners have the same homeownership profile as current 45-64-year-olds to test how ownership patterns would change under alternative assumptions. Additionally, the ONS Private Rental Market Statistics which provides official estimates of rental prices and trends within the private rented sector in the UK is used to model the rental costs for pensioners through retirement.
The household level adequacy chapter relies on the Wealth and Assets Survey (WAS) was used in the analysis of pension wealth in different household compositions, including mixed age and mixed income couples, the feasibility of offsetting pension wealth against property in divorce settlements and retirement adequacy projections.
The AE modelling chapter uses the Labour Force Survey to estimate AE eligibility among employees, based on the AE age and earnings conditions. The modelling estimated the numbers and proportions of eligible people under different AE eligibility conditions, across several groups, including men and women, disabled employees, age bands, carers, and self-employed people. Additionally the PPI Individual Model, which is part of the PPI’s suite of models, was used to calculate retirement outcomes by modelling the interaction between minimum wage rates and AE earnings trigger.
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