Why a lifetime spent renting will damage your pension pot
The government should increase total auto enrolment pension contributions during housing crisis.
19th February 2020 08:00
by Tom Bailey from interactive investor
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The government should increase total auto enrolment pension contributions during housing crisis.
Lifetime renters will run out of retirement money over a decade before homeowners, according to a new research from TISA, which promotes tax-free savings and investments.
The new report, titled ‘Getting Retirement Right: Plan, Prepare, Enjoy’, has modelled several scenarios for UK savers entering the workplace in 2025, to better understand the levels of savings needed to enjoy a “comfortable retirement”.
The report took into account pension contribution levels of 8%, 10%, and 12% and applied them across different scenarios and found that in each scenario, those not on the property ladder were likely to exhaust their pension pot before homeowners.
The starkest difference was between lifetime renters and homeowners who had made 8% contributions to their pensions, with the former running out of money 12 years earlier.
Added to that, the lifetime renters were modelled to run out of pension money five years before the average life expectancy, as it currently stands, at age 86. Even lifetime renters with 10% contributions will run out of money too early.
| Lifetime Renter | Homeowners (mortgage paid off at 64) | |
|---|---|---|
| Contribution at 8% | 81 | 93 |
| Contribution at 10% | 84 | 99 |
| Contribution at 12% | 87.5 | 105.5 |
According to TISA, these trends are particularly troubling given the seeming trend away from homeownership among millennials and younger generations.
Renny Biggins, retirement policy manager at TISA notes:
“We know from trends surrounding home ownership among younger people that renting could become much more common in retirement. Indeed, recent statistics have suggested that up to a third of millennials will be lifetime renters, if things continue as they are.”
He continues:
“Current levels of contribution at 8% clearly won’t cut it for those households that don’t own their home.”
However, with the housing crisis unlikely to be solved anytime soon, TISA is recommending the government increase total auto enrolment pension contributions to 12%.
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This article was originally published in our sister magazine Money Observer, which ceased publication in August 2020.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.