Many pensioners could face a growing bill of £1,160 a month, with experts warning that those planning for retirement have not considered this extra amount.
This growing living cost is often overlooked in pension adequacy calculations. Retirement experts at Standard Life Centre for the Future of Retirement warn that more and more people are going into retirement without owning their home. This means many retirees will be paying over £1,000 a month for housing costs, such as rent or mortgage payments, yet this fact is sometimes not considered in projections for how much people need to have saved for retirement.
'Fundamental flaw' in pension system
Catherine Foot, director of the centre, said: "Renting in retirement is set to become far more common in the years ahead. That exposes a fundamental flaw in our current pension system, which is built on the assumption that housing costs fall in later life."
Annual rental costs across the UK are £13,910 a year, or around £1,160 a month. Assuming a 3.8 per cent increase in rental costs, this could go up to £28,250 a year in 20 years' time.
Looking at the Retirement Living Standards from Pensions UK, this suggests a single person needs an income of around £13,900 a year for a minimum standard of living in retirement, or £32,700 for a moderate lifestyle. Yet this assumes you own your home and does not account for paying rent or any mortgage repayments.
Pressure on retirement finances
Ms Foot said: "Our analysis shows renters could face housing costs of around £13,910 a year on average. An extra £1,160 a month is not insignificant and for many retirees it is likely to be one of their largest regular expenses, leaving less money available for everyday essentials and putting greater pressure on retirement finances."
Experts say more action is needed to ensure people are saving enough for their retirement.
Government action underway
A major Government-commissioned study is underway looking at the question of the adequacy of pensions, with the second pensions commission. The group is working on a series of recommendations for the Government to consider.
An interim report by the group said that a "renewed national settlement on pensions" is needed, in light of issues including "longer retirements" and "falling homeownership". The group also said that the means-tested support for pensioners may need to be updated "in light of rising numbers of pensioners renting privately".
The commission is set to put its recommendations to the Government in Spring 2027. Ms Foot shared some ideas for what policies the Government should bring in, including more access to affordable housing, improving financial resilience throughout people's working life, and ensuring people are able to build adequate retirement income where home ownership is less common.
