The Housing Benefit system cuts 65p from a pensioner's support for every £1 of private pension income they receive, leaving just 35p of genuine benefit to their disposable income. New analysis by the Pension Policy Institute (PPI) estimates this is dragging around 333,000 pensioners into financial hardship.
The study, titled Do Pension Savings Pay? and funded by Independent Age, found that pensioners who save into private pension pots are losing out on Housing Benefit even though they are eligible. On average, they are losing around £50 per week in reduced or eliminated entitlement.
Benefit spending set to surge by £3.4bn
The PPI projects that Housing Benefit expenditure will rise by £3.4bn over the next two decades. This increase is expected as the retired population grows and pensioner home ownership declines sharply. By 2044, one in three pensioner households is expected to rent rather than own their own home - a major shift from previous generations.
Proposed disregard for private pension income
To fix the problem, the PPI proposes a disregard mechanism that would shield a portion of private pension income from the 65p taper rate applied in Housing Benefit calculations. The new model would offer a £25 weekly disregard for a retiree receiving the full State Pension. It would also offer £100 per week in private pension income. This would boost disposable income by £16.25 per week by increasing their Housing Benefit eligibility.
Expert reaction
John Adams, PPI senior policy analyst and lead author of the research, said: "The interaction between Housing Benefit rules and private pension income is working against eligible retirees, at a time when more pensioners are facing spiralling retirement rental costs. With housing costs in retirement set to look markedly different to the last generation, policymakers will need to consider how they reach the right balance to ensure Housing Benefit support works as intended."
Joanna Elson, CBE, Chief Executive of Independent Age, said: "As this important research shows, the Housing Benefit system isn't working for older renters on low incomes, especially those with small pensions. Reducing the already inadequate rental support they receive is a disproportionate response to the tiny amounts of income the pensions provide."
What is Housing Benefit?
Housing Benefit helps people pay their rent if they are unemployed, on a low income or claiming benefits. It is being replaced by Universal Credit. New claims can only be made by those who have reached State Pension age, or those in supported, sheltered or temporary housing.
