Housing costs will make or break retirement for Generation Rent

People who pay rent in retirement are half as likely to reach the minimum standard of living in retirement, according to analysis by Hymans Robertson.

The minimum standard of living in retirement is taken from the Pensions and Lifetime Savings Association’s (PLSA’s) Retirement Living Standards. Hymans Robertson used its Guided Outcomes technology to work out the chance of various members achieving different levels of retirement income under the PLSA’s recently revised RLS.

Bolstered by the state pension, achieving the minimum standard of living has previously been considered as highly achievable. An update to the RLS methodology in June meant that the minimum standard is now not much higher than the state pension, bringing it into reach for many people.

However, adding in housing costs for retirees made a fundamental difference as to whether they are likely to reach the minimum standard.

Hannah English, Hymans Robertson’s head of DC corporate consulting, said: “Our analysis spells out how big a difference paying for housing makes in dictating an individual’s quality of life in retirement. To drop from an almost guaranteed (98%) chance to a 43% likelihood of achieving the minimum standard is a huge drop that should not be understated.”

The solution

One way to avoid this issue is to give people access to their pension as collateral for their first property, English suggests. “Crucially, the money in the pension would still be invested – just in property, rather than in bonds or equities. Alongside the investment, the likelihood of someone being ladened with paying rent throughout retirement is reduced as they could have paid off their mortgage by the time they reach retirement.”

Even this proposal will not fix the problem entirely. Contribution rates must also increase to 12% to give savers a comfortable retirement, added English.

English added: “For our idea to work most effectively, there needs to be more social housing available for people to buy. It’s for this reason that we welcomed the government’s £39bn commitment to social and affordable housing over the next ten years in the recent Spending Review.”

She finished: “We hope this will move the dial in fixing the supply-side problem of getting more people on the housing ladder, as it would significantly improve their chances of reaching the PLSA’s minimum standard of living in retirement.”