Retirement warning as Brits who don't own home need £400k more pension
The true value of owning your home has been set out in stark terms as new figures show that pensioners who rent in retirement need almost £400,000 more in savings than homeowners who are mortgage free.
Pensioner homeowners will breathe a sigh of relief as they do not have to add rental income to their monthly costs, particularly if they have paid off their mortgage.
This will increase the pressure on younger people to get on the housing ladder, which remains a huge challenge with the average property asking price hitting £375,000 in May, while high interest rates make mortgages expensive.
People who expect to rent throughout retirement could need an additional £391,000 in savings compared to those who have paid off their mortgage, according to new analysis from pension and insurance specialist Standard Life.
The Pensions and Lifetime Savings Association (PLSA) recommends that pensioner couples need a minimum income of £22,400 a year in retirement to cover essential needs and some discretionary spending, rising to £43,100 for a moderate income.
However, this excludes housing costs and with the average UK rent now £14,952 a year – and much higher in hotspots like London – that would have to come on top of the PLSA’s calculations.
This means renters could require total savings of £839,000 to last for a 20-year retirement, against £448,000 for couples who are rent and mortgage-free.
Buying property is likely to remain a financial stretch for younger people. Many who are still renting in their 40s or 50s may now find it impossible to get on the ladder.
Even if they do, they may struggle to clear their mortgage before they stop working, as growing numbers reach retirement with unpaid debt.
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The proportion of households that own their home in retirement are set to fall from 78 percent to just 63 percent by 2041, according to the Pensions Policy Institute.
Claire Altman, managing director of individual retirement at Standard Life, said homeownership has an emotional pull, but it also offers a secure base in retirement, especially if the mortgage has been paid off.
The growing number of Britons who cannot afford to buy must factor in the cost of paying rent when doing their retirement sums.
They are unlikely to save enough by contributing the bare minimum to a pension, Altman said. “Many face trade-offs between saving for retirement and getting on the housing ladder.”
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Those who rent in retirement will also have to find ways to generate a secure, guaranteed income from their pension, to make sure they can continue to pay their rent, for example, by purchasing an annuity, she added.
Catherine Foot, director of longevity think tank Phoenix Insights, said less than a third of current renters expect to buy a house, leaving close to 11 million people facing rental costs in retirement.
Many also struggle to build sufficient pension and will have to work even later in life if they possibly can.
The benefits of owning your own home in retirement are clear cut. It doesn't just offer you security, which you will never have as a tenant, but it can save you a heap of cash as well.
As wages stagnate, many face a stark choice between saving for a pension and taking out a mortgage to buy a property. It's getting ever harder to do both.
