Current pension savings could be “entirely absorbed” by rental costs in later life, as retirees who rent may need the full 8 per cent minimum automatic enrolment (AE) contribution paid from age 22 just to cover housing costs, Hymans Robertson has warned.

The consultancy’s new paper, Tapping the potential of pensions for home ownership, explored the impact of falling home ownership on retirement income, warning that some renters’ workplace pension savings may not be sufficient to fund their lifestyle in later life.

Instead, Hymans Robertson warned, their workplace pension could be used solely to pay rent, leaving the state pension to cover all other outgoings.

The paper argued that falling home ownership is becoming an increasingly important pension adequacy issue, with the second Pensions Commission’s interim report also identifying lack of home ownership as a key barrier to an adequate retirement.

Hymans Robertson cited analysis from the Pensions Management Institute’s Lifetime Savings Initiative, which estimated that rising levels of renting in retirement could cost the Treasury around £15.4bn by 2035.

In addition, Hymans Robertson pointed to findings from the Financial Conduct Authority's Financial Lives 2024 survey, showing that half of pensioners who rent are not coping financially, compared with 11 per cent of those who own their home.

The consultancy argued that, while increasing the supply of affordable housing is vital, pensions policy and product innovation should also play a role in helping people access home ownership without undermining retirement income.

Its paper set out several potential approaches linking pensions with property, including allowing pension savings to be used towards a deposit, redesigning contribution structures, increasing employer contributions, or using pension savings as a condition for a housing loan.

Hymans Robertson claimed its modelling showed that pathways combining pensions and property ownership could broadly double a low earner’s wealth at retirement.

Hymans Robertson partner and head of pensions policy innovation, Calum Cooper, said: “Renters retiring will need the full 8 per cent minimum pension contribution savings to provide an income just to cover the cost of rent.

“This shows how fragile the pensions and property systems have become. If we fail to do something during this period of pensions reform, then there’s a risk of a ‘lost generation’ of impoverished renters in retirement.

“And they will wonder why they saved into pensions rather than buying their own home. This will be bad for the pensions brand.

“Workplace pensions were designed to provide additional income to live in retirement. They were never intended to fund rental costs alone.”

Cooper added that the analysis raised “serious questions” about whether the current pensions system can deliver adequate outcomes for future retirees, who are increasingly likely to rent.

“We know that home ownership is one of the strongest foundations for financial security later in life,” he continued.

“Without it, far more people are exposed to the risk of poverty, instability and difficult financial choices throughout retirement. This is why we need to think differently; pensions and housing cannot be treated in isolation.”

Cooper argued that targeted flexibility would be key, with the industry, supported by the government, needing to consider how pensions can support access to home ownership without compromising their long-term purpose.

“Whether this is done through looking at using pension savings as a deposit, addressing scheme design, increasing employer contributions or using pension savings as a loan condition, innovation is needed," he said.

Meanwhile, Hymans Robertson suggested its proposals could also increase pension engagement by making pensions more relevant earlier in people’s working lives.

The report cited Money and Pensions Service research suggesting that around two-thirds of people are disengaged or confused about pensions, arguing that linking pension saving to home ownership could help address behavioural barriers to saving.

Cooper noted that making the system work harder for people could help improve retirement income, while also increasing pension engagement.

“We need to be thinking ahead for the world as it will otherwise be in the 2030s and invest our time to make the change now," he said.

“By putting mechanisms in place through the current parliamentary term, we have a chance to change the system in the 2030s and prevent a generation reaching this cliff edge of inadequacy before it is too late.”

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