The housing problem putting pressure on our pensions

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, comments on Hargreaves Lansdown’s Savings and Resilience Barometer, which shows the housing problem is putting pressure on our pensions.

Key points from barometer:

• Renters were much less likely than homeowners to be on track to have a moderate income* in retirement according to the latest findings of the HL Savings and Resilience Barometer.
• Over half (56.4%) of Gen Z homeowners were on track compared to just 15.5% of renters.
• It was a similar picture for Generation X with over half (52.2%) on course while only 17% of renters could say the same.
• Only 13.3% of baby boomers who rented have saved enough.
• 9% of couples who were homeowners were on track compared to just under half (49.4%) of single homeowners.
• However, only 17.8% of couples who rented were on course in comparison to 15.2% of single renters.

Helen Morrissey says:

“Renters have a huge looming pension problem and risk sleepwalking into a retirement crisis. Across all generational groups, renters trail their home-owning peers when it comes to being on track to achieve a moderate retirement income. Even those who rent with their partner are significantly less likely to be on course with their pension planning than those couples who own their own home.

“One potential explanation is that those who manage to become homeowners are better at planning their money in the first place so are more likely to make retirement provision. However, it could also be that the cost of saving for a deposit leaves no room to save for anything else or it deters people from even trying in the first place. We also can’t discount the huge impact of the Bank of Mum and Dad. Recent research from Savills showed parents helped almost half of all first-time home purchases in 2021. Either way it is a grim picture for renters who face retirement with little pension and no home if they don’t have parents who can help them.

“We know the cost of getting on the housing ladder has spiralled and this has had a significant impact on our financial planning and risks ruining our retirements. Those who don’t manage to get on the housing ladder need to find the money to keep paying their rent throughout their retirement years. This is a significant extra cost to account for in an already stretched budget. 

“Even those lucky enough to get on the housing ladder will realise the idea of reaching retirement mortgage-free is a rapidly vanishing dream. People are buying later in life and mortgage terms are rising. Increasingly, we will enter retirement with outstanding mortgage debt that needs to be repaid. This all puts extra pressure on our retirement planning.

“While the Gen Zs and millennials have time to get on the housing ladder, potentially pay off their mortgages and boost their retirement saving time is running out for older people. The Baby Boomers look particularly exposed with only around one in eight renting boomers on track for a reasonable retirement.”

Percentage who are on track to receive a moderate income in retirement:

*Moderate retirement income as defined by the Pension and Lifetime Savings Association is £20,800 per year for a single person and £30,600 per year for a couple.

About the HL Savings and Resilience Barometer

In partnership with Oxford Economics the HL Savings and Resilience Barometer measures the financial resilience of the nation every six months, to see whether we are getting stronger or facing bigger challenges.

The Barometer is unique because instead of looking at specific aspects of our finances in isolation, it draws together 17 data points from a number of official data sets, across these five pillars to provide a holistic measure of the state of the nation’s personal finances.

It is structured around the five pillars of financial behaviour that we consider fundamental for households to balance current and future demands, while guarding against risks. These are: controlling your debts, protecting your family, saving for a rainy day, planning for later life and investing to make more of your money.

The aim of our work in this area is to help to promote awareness and understanding, inform the debate, and ultimately help improve the decisions individuals and policymakers make to improve financial resilience.

Kindly shared by Hargreaves Lansdown

Main photo courtesy of Pixabay