The Pensions Adequacy: Housing, Households and Auto-Enrolment report from the Pensions Policy Institute (PPI) and Association of British Insurers (ABI) found that 65% of people aged 45-65 were homeowners, around 15 percentage points lower than two decades ago.
The report found that those over 65 were more likely to be homeowners, while households aged 45-64 were more likely to be in private or social rented homes, particularly those in lower- and middle-income brackets.
It said homeownership rates had consistently fallen, predicting that by 2044, there would be a “substantial shift away” from owner-occupation among pensioners and a rise in renting.
It predicted that owner-occupier pensioner households would fall from 79% to 64%, while private renting would rise from 6% to 18% of pensioner households. Similarly, social renting among pensioner households could rise from 15% to 18%, collectively resulting in more than a third of pensioners in rented households.
The PPI said this may impact people’s quality of life in retirement, as more retirees faced ongoing housing costs.
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“This increases the risk of reduced living standards, higher exposure to poverty, and greater dependence on means-tested support such as Housing Benefit and Pension Credit,” it said.
Both older renters and homeowners face financial pressures
People are also becoming homeowners later in life, as the average age of first-time buyers in England has risen from 32 to 34, and from 33 to 35 in London over five years. The report said any private renters aged 35-44 would need to buy a home soon to improve their chances of paying off a mortgage before retirement.
The report said more people would reach later life still paying rent or a mortgage, eroding their disposable income and putting pressure on both pension adequacy and the benefits system.
This could also create a generational divide, as today’s retirees benefit from higher housing security while future retirees face housing-related financial risks.
It said that without “significant” improvements in affordability or ownership rates, more people would enter retirement with persistent housing costs.
Further, there is a risk that those aged 45 or over may struggle to access a standard mortgage at all, meaning private renters aged 45-64 risk insufficient retirement income if they also have to pay rent.
The report said homeowners with mortgages going into retirement may need to consider later life lending to manage housing costs, along with other alternative strategies.
However, it said some people may be reluctant to access later life lending products due to social stigma, limited supply of suitable and desirable retirement housing, and the financial costs of downsizing, including transaction costs and stamp duty.
Using pension savings for homeownership has benefits and risks
The report said pensions, housing and welfare policy were linked as they each shaped financial security in later life.
There has been some debate around using pension savings for a deposit to get on the housing ladder, with Nest Insight saying this could speed up the route to homeownership.
However, the PPI said this approach raised concerns about “long-term pension adequacy, housing affordability, and wider systemic stability”. It said the benefits of using pension savings to buy a home could be concentrated among a small number of people who may otherwise never achieve homeownership.
“As a result, access to pension savings may only improve access to homeownership for a relatively limited group unless combined with other forms of savings or lower deposit requirements,” the report added.
While any policy around this is unlikely to allow people to withdraw their entire pension pot, the report said if a substantial amount was used, people would need to restart their pension savings from a lower base at an older age, therefore “reducing the benefits of compound investment growth over the remainder of their working life”.
