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The increase in private renting poses a threat to the future of the UK’s pensions system and savers’ retirement outcomes, a new report from the Pensions Policy Institute (PPI) has warned.
It described changing home ownership patterns as a ‘fault line’ opening beneath the pensions system that could jeopardise retirement adequacy for more than a million pensioner households by the early 2040s.
Using its UK Pensions Framework, in association with Aviva, to conduct a policy simulation for the first time, the PPI explored the risks that falling home ownership, rising private renting and shrinking social housing sector could pose to the retirement outcomes of those nearing pensionable age.
According to the modelling, if the current home ownership trends among today’s 45- to 64-year-olds continue through to retirement and other factors remain the same, the proportion of households that own their home in retirement could fall from 78 per cent to 63 per cent by 2041.
Furthermore, the proportion of retired households living in the private rental sector could increase from 6 per cent to 17 per cent during the same period.
The PPI noted that very few renters would have adequate savings to cover both the cost of living and cost of renting in later life, estimating that as many as 400,000 households could become dependent on income-related pensioner benefits.
Its modelling highlighted a growing fracture in the relationship between pensions and housing that was putting strain on the overall UK retirement income model, and warned that unless policymakers adjust their expectations around housing affordability and ownership in later life, dependency on public spending among pensioners could increase.
Furthermore, the institute raised concerns that the assumptions, levers and metrics in UK pensions policy do not adequately reflect the changing characteristics and circumstances of future pensioners, the holistic nature of retirement, or threats to adequacy from outside the UK pensions system.
The PPI stated that its simulation demonstrated the need for a renewed focus on the holistic and individual nature of retirement, and for saving for retirement.
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