‘Generation Rent’ are in danger of not being able to afford retirement due to dealing with higher costs than those who own their homes, Hargreaves Lansdown has warned.
A survey from the firm, which also warned that traditional retirement advice would not be appropriate for renters, found that 17 per cent of current retirees rent their home, noting that 58 per cent of older people in privately rented accommodation had annual housing costs of over £6,000, compared to only 36 per cent of those who own with a mortgage.
Additionally, 18 per cent of older people in privately rented homes were in fuel poverty, compared to 13 per cent who owned a home with a mortgage and 6 per cent who owned their home outright.
Over 60s who owned their home outright were the most likely group to have savings and investments, with more than three quarters (77 per cent) of them having these additional sources of funds, compared to just 44 per cent of those who rent privately.
As such, the firm highlighted a number of problems that ‘Generation Rent’ face when it comes to retirement, noting that they may have to save more than their homeowning contemporaries in order to cover the cost of rent and thus might have to endure longer working lives and shorter retirements.
Additionally, the firm warned that taking a lump sum at retirement could be incompatible with renting, as it might push monthly income below the level required to afford rental obligations.
However, Hargreaves Lansdown did note that there were some positives to renting in retirement, such as avoiding the hassle and cost of maintenance, and not having to go through tricky property sale negotiations if seeking to downsize, move closer to family or move to a supported environment.
Hargreaves Lansdown senior pensions and retirement analyst, Helen Morrissey, said: “Generation Rent risks not being able to afford to retire. If you’re still renting after you stop work, then relying on the rules of thumb of traditional retirement planning isn’t necessarily going to be effective.
“Unless Generation Rent plans carefully for far higher costs than those who have been able to afford a place of their own, they are going to face some horrible decisions and compromises in retirement.”
She commented that getting onto the property ladder was “nigh-on impossible for millions of people” due to higher house prices and cost of living, adding that expensive life stages, such as starting a family, would also “put people on the back foot financially for years” and mean that more people were likely to still be renting at retirement.
Morrissey continued: “At this stage, traditional retirement planning assumes you’ve paid the mortgage off, so you don’t have any regular housing expenses. It means most people plan to live on a lower monthly income than they do when they’re working.
“If you’re still paying more than a third of your income on rent, it will have a profound impact on your retirement finances, and you’re going to need a much larger pot. So, if you’re going to rent and enjoy the retirement you want, you need to plan carefully.”