Lifelong renters to deplete pensions 12 years before homeowners

Lifetime renters are expected to deplete their pension savings 12 years before homeowners, assuming current levels of auto-enrolment (AE) contributions continue, new research has revealed.

The Investing and Savings Alliance's (Tisa) report also found that renters entering the workforce in 2025 are likely to use up their pension savings nine years before reaching their predicted average life expectancy age of 90.

With recent research from the Resolution Foundation stating that 16 per cent of millennials are expected to rent in the private sector for their entire life, Tisa emphasised that the findings illustrated the "scale of the challenge facing future generations".

Tisa has outlined five recommendations within the report, including proposals to increase auto-enrolment (AE) contributions to 12 per cent in order to push households towards the “desired retirement income” of £29,000 per annum, inclusive of the state pension.

The recommendations also included lowering the minimum age for AE to 19 and to lower the earnings limit by 2022, echoing recommendations outlined by Department for Work and Pensions (DWP) and industry experts.

Tisa retirement policy manager, Renny Biggins, commented: “Based on our research, increased contributions of even 12 per cent would be insufficient in isolation for families unable to get on the housing ladder.

"Should renters also have to face care costs, they could quickly find themselves in pension poverty, without any housing wealth to fall back on.

“The perennial political debate around the best way to fix the housing crisis is unlikely to be resolved any time soon. But what this report drives home is the critical need for consumers to be armed with more information and better choices that reflect the new reality of retirement.”

Although the government failed to include the DWP's similar recommendations in the Pension Scheme Bill currently working through parliament, it has recommitted to a mid-2020s timeline for auto-enrolment expansion, emphasising that any changes would be focused on supporting younger people and lower earners.

Tisa's report also follows the JRF's annual report which revealed an overall uptick in pensioner poverty, with the percentage of pensioners privately renting and in poverty increasing to 35 per cent.

The association recommended the development of better consumer engagement tools, emphasising the need to ensure that households are making informed decisions that reflect and support their retirement income expectations.

Biggins added: “AE alone will not solve the savings crisis facing the UK.

"For AE to be the success we want, there needs to be far more education and guidance support wrapped around the defined contributions schemes that underpin it.

"The ambiguous nature of the current regulation reduces both the quality of the guidance available, as well as access to services the private sector could make available free of charge to the mass market.

"We believe a regulatory rethink is critical in addressing the issue of under-saving and would go a long way in helping people understand what they need to do in order to reach their retirement goals."

In producing the Getting Retirement Right: Plan, Prepare, Enjoy report, Tisa modelled a number of different scenarios for UK savers entering the workplace in the mid-2020s.

They were designed to help understand the levels of saving needed to meet moderate living standards in retirement, as outlined by the Pensions and Lifetime Savings Associations (PLSA) Retirement Living Standards.

Commenting on the report, PLSA head of DC, master trusts and lifetime saving, Lizzy Holliday, emphasised that the recommended changes to auto-enrolment would give savers a “much better chance of achieving financial security”.

“The ongoing debate about adequacy,” Holliday explained, “coupled with low levels of saver engagement, presents an emerging opportunity for the pensions industry to establish some simple rules of thumb for the savings rates required to reach each of the minimum, moderate and comfortable Retirement Living Standards.

“The PLSA will now be seeking to work with our members and the rest of industry to reach a consensus, to take the Retirement Living Standards to the next level to assist savers.”

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