The cost of renting in retirement: £391k

id

• Standard Life analysis reveals people who rent in retirement could need almost £400,000 more in savings than those with no housing costs
• This comes as average price of a UK property coming to market hit £375,000 in May, highlighting challenges facing those looking to get on the property ladder¹

People who expect to rent throughout their retirement could need an additional £391,000² in savings compared to those who have paid off their mortgage, according to new analysis from Standard Life, part of Phoenix Group.

Office for National Statistics (ONS) figures show the average monthly rent in the UK is currently £1,246, and the average annual rent increase since 2016 is 2.5%. The analysis projected these costs forward from state pension age to average life expectancy and found significant regional variances with the total sums required ranging from £660 for the North East and £2060 for London in year one. By the end of the 20-year period, the same cost will be £1060 for the North East and £3290 for London. In reality, year by year rental increases will vary subject to factors including inflation and interest rates, however these figures give an indication.

Average rental costs by region, projected for 20 years:

_{*figures project annual increase of 2.5%, and are not otherwise adjusted for inflation. Rounded to the nearest £10.}

The Pensions and Lifetime Savings Association³ recommends that pensioner couples need a minimum of £22,400 a year in retirement to cover essential needs and some discretionary spending, but this excludes housing costs. This means renters could find that they require total savings of £839,000 per household over the course of 20 years in retirement⁴ - an 87% increase compared to those who are rent and mortgage-free, who would require a smaller amount of £448,000.

This analysis comes as the average cost of buying a UK property hit £375,000 in May and mortgage rates remain higher than we’re used to, stretching affordability for many home-buyers. While it’s difficult to predict how house prices will change in the future as we’re yet to see how demand and supply for UK housing will play out, it’s likely that buying property will remain a financial stretch for people.

However, more than a quarter (28%) of Gen Xers will mostly or solely rely on the state pension to fund their retirement, or don’t have any pension savings at all.

Claire Altman, Managing Director of Individual Retirement at Standard Life, part of Phoenix Group, commented: “For many people, their home not only has emotional significance, but it is also something they may expect to rely on in retirement. However, if house prices continue to rise, people will increasingly need to think about how they will meet essential housing costs in retirement, with the Pensions Policy Institute⁵ predicting the proportion of households that will own their home in retirement could fall from 78 per cent to 63 per cent by 2041.

“For those who don’t eventually buy, these figures highlight the likely additional savings to be factored into budgeting, which is unlikely to be achieved through contributing the minimum amounts to a pension. This will have knock on consequences for how people manage their retirement income too, as people look to find ways to secure their fixed rental costs, which could be through annuitising in tranches, an inflation-linked annuity, or other means.

“An individual’s housing status is very important in retirement planning, but for many, consideration will need to be given to the trade-offs between saving for retirement and getting on the housing ladder. Whatever your housing position, it’s important to be thinking about how pensions and property work together as you plan for your retirement, and there’s a clear role for pension providers to play in offering tools and resources to help people access the property ladder at different stages in their journey to and through retirement, alongside their retirement savings.”

Catherine Foot, Director of Phoenix Insights, Phoenix Group’s longevity think tank comments: “Phoenix Insights research found less than a third of current renters expect to buy a house, leaving close to 11 million people needing to fund ongoing rental costs in retirement⁶. Planning ahead for these costs will be crucial but this group typically face higher ongoing housing costs throughout their working lives as well as a lack of predictability of costs, which makes it harder for them to save. Supporting people to remain in good work is critical to enabling those facing housing costs in later life to continue to earn and save for as long as they want or need.”

ENDS

Notes to editors

1 Rightmove House Price Index
2 Figures calculated using ONS Private Rent and House Prices figures, and account for an average annual increase of 2.5% per year. Figures are for the UK as a whole.
3 PLSA - Retirement Living Standards
4 Based on ONS life expectancy figures for a 66 year old today
5 The Pensions Policy Institute: 202311-the-uk-pensions-framework-final2.pdf
6 Phoenix Insights, Longer Lives Index

Media contact

For further information, please contact:

About Standard Life 

• Standard Life is a brand that has been trusted to look after peoples’ life savings for nearly 200 years 
• Today it proudly serves millions of customers who come to Standard Life directly, through advisers and through their employers’ pension scheme.
• Standard Life is part of the Phoenix Group, the largest long-term savings and retirement business in the UK. We’re proud to be building on nearly 200 years of Standard Life heritage together
• Our products include a variety of Pensions, Bonds and Retirement options to suit people’s needs, helping our customers to invest and save for their future. We’re proud to offer a leading range of sustainable and responsible investment options.
• We support our customers on their journey to and through retirement with comprehensive, easy-to-understand guidance so they can invest in the right way for their needs, and plan a future they feel confident about.
• Standard Life is the proud headline sponsor of Race for Life, Cancer Research UK’s flagship fundraising event series.