Housing benefit rules offer a weak incentive for pension saving and should be revised, according to the Pensions Policy Institute (PPI) – creating a significant issue as the number of people renting in retirement is set to increase.
The current system reduces or removes housing benefit entitlement for approximately 330,000 pensioners who would otherwise be eligible, averaging a weekly cut of £50, according to the PPI.
The PPI’s research, published this week in collaboration with Independent Age, suggested that the means testing of private pension savings used to calculate the amount of housing benefit a pensioner or pensioner household receives could dissuade private pension saving.
The assessment outlines how the net impact of every £1 of private pension income reduces housing benefit entitlement by 65p, leaving an improvement of just 35p to a person’s disposable income.
John Adams, the PPI’s senior policy analyst and lead author of the research, said: “The interaction between housing benefit rules and private pension income is working against eligible retirees, at a time when more pensioners face spiralling retirement rental costs.
“With housing costs in retirement set to look markedly different to the last generation, policymakers will need to consider how they reach the right balance to ensure housing benefit support works as intended.”
The research also reveals that housing benefit spending may increase by £3.4bn by 2044 despite the assessed eligibility rules.
This reflects the growing pensioner population and a 14% fall in home ownership rates, with one in three pensioner households expected to be renting by 2044.
The PPI suggested that housing benefit rules should be adjusted so that less of a person’s pension income is used in the means testing process.
Joanna Elson, Independent Age’s chief executive, said: “To prevent more older renters on low incomes being dragged deeper into financial hardship, we’re urging the Pensions Commission to recommend changing the eligibility criteria for housing benefit, so small amounts of private pension income are disregarded.
“It’s also vital the government unfreezes Local Housing Allowance rates and ensures they keep pace with the rising costs of renting. The growing number of older private renters, one third of whom are in poverty after housing costs, really do need these changes.”
