Buy to Let

Renting throughout retirement costs an extra £391,000

Renting throughout retirement costs an extra £391,000
Christina Hoghton
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Christina Hoghton

People who rent in retirement could need almost £400,000 more in savings than those with no housing costs, according to new analysis.

According to Standard Life‘s analysis, renters could need £391,000 more in savings throughout their retirement compared to those who have paid off their mortgage.

It said that 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 rents required ranging from £660 for the North East and £2,060 for London in year one. By the end of the 20-year period, the same cost could be £1,060 for the North East and £3,290 for London.

Essential retirement costs

The Pensions and Lifetime Savings Association recommends that pensioner couples need a minimum of £22,400 per year in retirement to cover essential needs and some discretionary spending, but this excludes housing costs.

This means renters could find that they need total savings of £839,000 per household over the course of 20 years in retirement. That’s 87% more than those who are rent- and mortgage-free, who would require a smaller amount of £448,000.

Claire Altman, managing director of individual retirement at Standard Life, part of Phoenix Group, said: “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 Institute predicting the proportion of households that will own their home in retirement could fall from 78% to 63% 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.”

Catherine Foot, director of Phoenix Insights, Phoenix Group’s longevity think tank, added: “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 retirement. 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.”

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