More than six million people in the UK do not have a plan to pay their rent or mortgage when they retire, according to exclusive research from Royal London. Four in ten of those who expect to pay housing costs in retirement say they do not know how they will cover them.
The research, highlighted by consumer rights campaigner Martyn James and Royal London consumer finance specialist Sarah Pennells, offers a series of practical steps for people in mid-life who are worried about their retirement finances.
What the research found
Over one third of adults – 18.7 million UK adults – expect to pay housing costs in retirement or are currently doing so. Just under half of those who rent (45%) expect to pay housing costs for more than ten years, and only half of people with a mortgage expect to be mortgage-free within six years of retiring.
Those who think they will have housing costs in retirement have an average pension pot of £34,948. People who do not expect to pay housing costs in retirement have an average of £120,682 saved in pensions, while the average pension pot size overall was £93,221.
Six in ten of those currently in financial crisis expect to pay housing costs in retirement, compared with just over one in ten of those who describe themselves as comfortable. Over a third of renters (35%) do not know how they will pay their rent in retirement, compared with over four in ten (42%) of mortgage holders.
How people plan to pay
The research also looked at how people intend to cover their housing costs. Almost one in four renters (23%) think they will pay their rent in retirement using means-tested benefits, compared with 2% of mortgage borrowers. Almost one in five renters (18%) say they will use the State Pension to pay their rent, compared with 7% of mortgage borrowers.
One in seven renters (14%) say they will use pension income to pay housing costs, compared with over one in five (22%) of mortgage borrowers.
Tips for a mid-life pension MOT
Sarah Pennells advises that people in their fifties should not fall into the trap of thinking it is too late to improve their retirement finances. She suggests finding any lost pensions, considering boosting contributions if affordable, and working out how to meet any housing costs in retirement.
She also recommends calculating what future housing costs could look like rather than guessing, and reviewing pension pots as carefully as people review their mobile phone contracts. Even a small extra contribution now could make a difference by retirement, and employers may match extra payments pound for pound.
On inheritances, she advises thinking carefully before spending: using some or all of an inheritance to reduce a mortgage balance could be one of the most effective ways of improving finances in retirement. Lower housing costs in later life mean pension income will not have to stretch as far.
The Pension Policy Institute estimates there are around 3.3 million lost pension pots worth around £31 billion in total, with an average value of roughly £9,500 each. The Government's free Pension Tracing Service can help people find contact details for old pension schemes.
For renters, more than half (57%) said their rent had increased in the previous 12 months, so building a financial buffer into plans is advised. Mortgage holders are encouraged to check how much they can overpay and what their lender will allow, while being aware of early repayment charges on fixed-rate deals.
The key message is that a perfect retirement plan is not needed to get started. Finding a lost pension, increasing contributions by a small amount, paying a bit extra off a mortgage, or simply working out where retirement income will come from are all small actions that can add up to a more comfortable retirement.
For those feeling overwhelmed, the advice is to set aside 30 minutes, put on the television or radio, and set a 30-minute alarm to start the process. Free resources such as the MoneyHelper website and helpline offer plain English pension advice.
