I’m a 45-year-old professional who rents and has no pension – should I worry? Steve Webb replies

I am a practicing psychologist and work for the NHS and privately. I do not contribute to my pension as I invest my earnings in continued professional development for my career.

The cost of living in London doesn't help either. I am now 45. I live in a rented apartment and am now starting to worry about my future.

What happens when I retire? Any advice would be greatly appreciated.

SCROLL DOWN TO FIND OUT HOW TO ASK STEVE YOUR PENSION QUESTION

Steve Webb replies: Thank you for your question. It's great that you're seriously considering your longer-term financial position.

Unfortunately, because you may be halfway through your working life and only now starting to think about these issues, my answer will contain some challenging messages.

But hopefully it contains some thoughts on coming up with a good strategy based on where you start.

My answer consists of three parts. First, I will go through what your future could hold if you do nothing. Then I will look at your options if you give priority to pension accrual. And finally, I'll address what may be the bigger issue, which is thinking about your living situation.

If you do nothing, your income upon retirement will come entirely or largely from the AOW. You would have to go to the government website to get a forecast, but I expect you are on your way to a full 'fixed rate' pension, which is currently worth around £10,600 a year.

It is fair to say that this figure is designed to cover no more than the basic necessities of life.

Indeed, measured against the Pensions and lifelong savings insurance 'standard of living at retirement', you wouldn't even reach the “minimum standard” they think someone should hope to reach in retirement.

And as I discuss later, that standard is based on the assumption that you have no housing costs, which is probably not the case for you in the current situation.

If you only receive state pension benefits and are retired as a private tenant, you may be eligible for help with your rent through the housing benefit system.

But to be honest, no one can guess what that system will look like in perhaps 20 to 25 years when you retire.

Benefit support for private renters has come under pressure in recent years, although the Autumn Statement announced that the rules would be relaxed.

But it is clear that policy is unpredictable and it would be an extremely risky strategy to assume that a future government will pay a significant portion of the rent in retirement.

One response to all this would be to get serious about retirement savings. The good news is that because you work part-time for the NHS, you are likely to be eligible to join the NHS Pension Scheme.

This is a very high quality scheme, with your employer making a very substantial contribution to the total cost of your pension, and for most people I wouldn't hesitate to suggest you join it as a matter of urgency.

Unfortunately, only part of your work is for the NHS. So you only build up a pension on part of your total annual income.

But making the most of your access to the NHS scheme makes sense if pensions are your priority.

Consider spending your savings on buying a house

But – and it pains me to say this as someone who lives and breathes pensions – you should seriously consider whether your priority for long-term savings should be sorting out your housing situation.

If you can get into the housing market – even in a modest way – so that your mortgage is largely paid off by the time you retire, then you will be free of housing costs in retirement and that would be a major advantage.

If you are still a private renter who has retired, meeting your normal living costs, plus the part of your rent not covered by benefits, can leave you with a very meager pension.

If you have your own home, you at least have certainty about your living situation and more disposable income.

While I don't know your full financial circumstances and can't give you financial advice, I would certainly encourage you to consider whether prioritizing becoming a homeowner might be your better long-term savings strategy.

As you get started on buying a house and your career progresses, you will find that you can then combine this with some degree of retirement savings so that you have both reduced your expenses and increased your income in retirement .

If you are interested in thinking more about the implications of 'renting in retirement', I can recommend a very recently published book: report on this from the Institute for Pension Policy.

This highlights the fact that without a change in policy we could easily see another million retirees in the future in the situation you might otherwise face, namely having to finance both normal living costs and the rent of a meager retirement income.

I hope you can take timely action to prevent this outcome for yourself.