Today’s Home Renters Won’t Have Enough Money for Retirement
Compared to homeowners, renters are likely to exhaust pension provision 12 years sooner.
The Investing and Saving Alliance (TISA) has released a report assessing the impact of rental costs against savings. Their calculations show that the average UK family renting their homes will run out of cash and exhaust their pension savings 12 years before homeowners will. UK savers entering the workforce this year will drain their savings nine years before they reach the age of ninety.
In their most recent report, “Getting Retirement Right: Plan, Prepare, Enjoy”, TISA has portrayed a variety of scenarios for UK savers for them to understand the amount of savings needed to live comfortably during retirement. TISA has laid out in each scenario, the age at which private pension funds would completely diminish based on contribution levels of 8%, 10%, and, 12%.
Under auto-enrolment, the current minimum contribution of 8% is seen as insufficient to sustain those renting in retirement. TISA has recommended that it be raised to 12% to ensure security among the savers.
Renters versus Homeowners
In the current auto-enrolment contribution rates, homeowners will be able to extend their savings 12 years longer than the average renting household. Tisa’s report shows that those who continue to rent now up to their retirement will exhaust their money sooner.
The report also illustrates that if one renter were to reach the average life expectancy of 90 years old, he or she might exhaust their pensions pot 9 years before that age. With the existing trend of declining homeownership among younger generations, renting is seen to be much more common in retirement. Statistics show that “up to a third of millennials will be lifetimes renters if things continue as they are.”
Renny Biggins, the retirement policy manager at TISA says, “Current levels of contribution at 8% clearly won’t cut it for those households that don’t own their home. Based on our research, increased contributions of even 12% 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.”
Aegon pensions director, Steven Cameron agrees with the Tisa finding that minimum auto-enrolment contributions should be increased to 12%. He adds, “the current minimum contribution of 8 per cent is simply not going to be enough for most people to live the lives they want in retirement.”
Cameron believes that individuals need proper guidance in understanding their savings allocations for the retirement life they aspire to. For him, attention should be given to the impact homeownership has on income needs during retirement. People should take this into great consideration when saving for the future.
The statistics of the TISA study show that a majority of people don’t know how to properly manage and evaluate their savings. For the recommendations to be successful, education and guidance are of the highest importance.
