You need £617k plus a state pension to afford rent AND a decent retirement

People who end up renting after retirement will have to save staggering amounts of money to fund modest housing and living expenses, a new study finds.

A pension pot of £269,000 alone would be needed to generate around £9,500 a year, the median or ‘middle of the pack’ rent for a two bedroom property in the UK.

That’s in addition to the pot of £348,000 plus a full state pension needed to earn a ‘moderate’ after-tax income of £23,300 a year to live on into old age.

The estimate of the huge portion that renting will take out of your pension fund in retirement came as official data showed that nearly five million adults still live with their parents and may never be able to afford to buy a home and pay off a mortgage. to pay.

The census figures show that the total number increased by 15 percent between 2011 and 2021 to 4.9 million, and that more than half of 20 to 24 year olds live in the parental home.

Rising house prices, financial pressure and care tasks keep families under one roof for longer.

Some adults who currently live with their parents will never make it up the housing ladder, and if they do, many will likely be burdened with mortgage payments instead of rent when they retire, rather than being mortgage-free like previous generations.

“Whether you rent or buy, there is a real risk that at least part of your pension will eventually have to be paid for housing and living expenses,” says former Pensions Minister Steve Webb, now a partner at LCP who has published the figures on paying pensions. rent at retirement creaked.

Webb says his company calculated potential rental costs separately during retirement because it was essential to look at people’s entire situation, including any housing costs, to help them make realistic plans for the future.

Rent or mortgage payments, social care costs and income tax are not included in the standard industry measure of what people need for a minimum, moderate or comfortable retirement.

This says individual incomes of £12,800, £23,300 and £37,300 per annum are required for a basic life and a decent and comfortable lifestyle in retirement, respectively. For a couple, the figures are £19,900, £34,000 and £54,000.

That’s based on several baskets of goods and services such as food and drink, transportation, vacations, clothing, and social outings, compiled in the Pensions and Lifetime Savings Association’s annual Retirement Living Standards report.

The full state pension for people retiring since 2016 is currently worth £10,600 a year.

Webb, columnist for This is Money’s pensions, says: ‘The pension world has long assumed that most retirees have paid off their mortgages and can therefore get by on much less than when they were working.

“But with younger generations finding it harder to get up the housing ladder, this could all change.

“Our research suggests that the pension pot needed by someone paying a fixed rent from their retirement savings needs a pension pot that is well beyond the reach of most ordinary people.

‘It’s not just tenants who may still have to pay housing costs when they retire. More than half of all new mortgages taken out by first-time buyers have a term of more than 30 years, and as young people take longer to climb the real estate ladder, these mortgages could easily push them past retirement age.’

Webb cites government research published earlier this year showing that people who are likely to retire are at a much higher risk of undersaving compared to those who will own a home.

When the annual Living Standards Survey was recently published, John Greer, Quilter’s head of pension policy, commented: ‘The PLSA’s figures all assume that retirees live rent-free or mortgage-free in their homes.

So, while these numbers make sense now, for future generations these numbers will need to increase significantly.

This is due to rising home prices, which means many are struggling to find the money to buy a home or are forced to take out marathon mortgages with maturities into the 70s to get lower monthly mortgage payments.

Similarly, the PLSA’s figures also fail to account for the potential costs of needing social care. According to the ONS, the healthy life of men is about 62.8 years and for women it is 63.6 years.

“Meanwhile, life expectancy was 79.0 years for men and 82.9 years for women, meaning many people will spend a significant portion of their retirement in poor health and may need to access expensive care.”

The Institute for Fiscal Studies recently released the following chart, which shows that less than 5 percent of people born in the 1930s and 1940s were private renters, and 6 percent born in the 1950s rented in their mid-60s.

“For those born in the 1960s, the fraction who are private renters has been stuck at 10 percent for about three decades and, now in their mid-50s, shows no clear signs of decline.” said the The ‘Challenges for the UK pension system’ report from IFS.

“The potential for higher private rents among those approaching retirement is even greater for younger generations, although there is significantly more uncertainty about how these patterns will develop for them.”

But the IFS warned that recent trends suggest that a growing portion of the population will need to save for retirement, including paying monthly rent, costs likely to be covered in part by housing benefit.

It said legacies could counteract or mitigate this for younger generations, allowing some private renters to buy a home later in life.

But the IFS added: ‘Two factors that may limit the possibility of this playing a substantial role are the fact that relatively few will inherit to buy a house and those most likely to leave significant legacies. receive are likely to be richer themselves. , and therefore probably already homeowners.’