I noticed this data in a press release from Hargreaves Lansdown this week:
- Renters were much less likely than homeowners to be on track to have a moderate income in retirement according to the latest findings of the HL Savings and Resilience Barometer.
- Over half (56.4%) of Gen Z homeowners were on track compared to just 15.5% of renters.
- It was a similar picture for Generation X with over half (52.2%) on course while only 17% of renters could say the same.
- Only 13.3% of baby boomers who rented have saved enough.
- 56.9% of couples who were homeowners were on track compared to just under half (49.4%) of single homeowners.
- However, only 17.8% of couples who rented were on course in comparison to 15.2% of single renters.
Of course, Hargreaves Lansdown has an incentive to sell pensions. That, however, does not prevent the data from having a very strong sense of reality within it.
As a matter of fact we have a pension system that is not geared towards many people having significant mortgage or rental liabilities owing in old age but the possibility that this might happen is now very real.
I have no answer to this problem at present, and nor, come to that, did Hargreaves Lansdown. That does not, however, mean that it is not worth flagging. This is most definitely an issue to think about.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Richard
I have been banging on about this for a long time. This is a time bomb waiting to happen. As an aside, I try and advise all young people that I come into contact with to do whatever they can to purchase property citing this as a reason.
Moving to the renting issue, we already have a significant issue in the South West regarding the economy being shored up by tourism and agriculture yet the workers in those sectors predominantly renting. The rental stock is decreasing rapidly resulting in people having to move away to find somewhere to live – at a point in time this will leave too few people to support the tourism or agricultural economy. This has been exacerbated by the reduction in itinerant, often Eastern European, workers available for work.
Once this demographic reaches retirement, the issue you raise will become a major problem. Consider a 70 year old retiree renting (somehow they have managed to afford rent on their pension), homeowner decides to sell the property, retiree has to vacate (regardless of how much notice given). Where does the retiree move to ? Rental stock is taken up by those working and, if the stock is at the same relative level as currently, demand will be super high. Deposits will be needed, rentals are likely to outpace inflation – the situation will become dire.
Like you, I have no solutions other than increase the rental stock in public ownership and provide more protection for a tenant that does not fall behind with rent. Both of these are harder to implement in practice than a one line sentence would imply.
The answer has to be social housing
Let me throw in another couple of trends.
First, “Boomerang” kids – who move out but then have to move back in with parents, usually because they find they can’t afford to pay rent and keep themselves.
Second, old people living alone. Just looking at my neighbours, I see 3 and 4 bedroom houses, worth £300-500K, with an elderly couple or single surviving spouse living there alone. These are people aged 60/70+ on low incomes (pensions), but who have paid off a 25 or 30 year mortgage and so have low housing costs – just Council Tax and energy. Their children can’t afford to live locally, so have to move away (also for work, of course).In time those children will inherit the house’s value, but at present life expectancies, the ‘children’ will be in their 50s and 60s before they doing so, with children/grand children of their own.
Putting these together, parents/grand parents capital rich but income poor, children good incomes (often) but unable to afford a house deposit; maybe we will see a move back to multi-generational families, as I see with many immigrant families locally. This would imply a shift in demand from small to larger houses, purchased perhaps by family, or even ‘group’ mortgages (family, perhaps via a novel form of family trusts?) .
Potentially this would have important social benefis – but it implies a radical change in how we think about the social, I think.
Thanks for thinking about it…..that is what is required
I am not sure we should be surprised. To summarise…
“Rich people have managed to save for retirement, poor people have not” – of, course, you will then ask for my definition of “rich” and I will reply “if you have bought a house you are likely to be rich”. (I over simplify… but you get my drift).
This interpretation does nothing to alter your observation that “the pension system is unsuited for XXXX* (*insert any number of things).
At a deep, fundamental level is is all about the inter-generational contract (which you have written often about)…. but even at a prosaic level it is about low pay and the inability of many to save at all. House ownership is a symptom of the problem, not the cause.
At least in part you are right
I also wonder whether both pensions and home ownership are symptoms of the same thing.
In principle, to buy a home or to supplement the state pension, you need both enough income and the self-discipline to save – for a house deposit or a pension fund. If you can’t manage one you are likely also to struggle with the other, creating a correlation.
It raises all sorts of questions, and to my frustration I couldn’t find anything on the Hargreaves Lansdown website about this research to pursue issues further. To what extent do both home ownership and pension saving become more widespread if someone’s earnings increase? What is the impact in retirement when home-owners may have lower outgoings than renters due to a mortgage paid off or at least lower in real terms, especially if renters are less likely to have private pensions supplementing their state pension? Is the inequality being further enhanced by any inheritance from home-owning parents likely being received around the time of retirement (and though not explored in what you quote, I suspect the home-owners are more likely to be children of home-owners)?
And then there are political implications – is this a disparity needing government intervention? Through my lifetime successive governments have felt that both owning your home and having an occupational or private pension are desirable and favoured them with tax incentives – but is that the best way to a more equitable society?
Re the last, those tax incentives now simply drive inequality
Their day is done
This is an issue that has been around for decades, certainly Colin Ward in the 60’s was pointing out that home owners didnt have to claim benefit to pay rent.
But of course to date those reaching retirement age have been mostly either home owners or Council/Regulated tenants on low rents which were affordable for many with a private pension.
Now we have an upcoming generation who have had to pay high rents and dont have the pension provision earlier generations benefitted from.
At the same time the percentage of GDP devoted to wages has dropped further adding to the squeeze
Its worth also making the point that since WW2 building costs have risen in line with inflation BUT land prices have rocketed.
To a large extent its caused by our dysfunctional housing market
From a housing POV, some very interesting insights here.
A thing I’ve noticed with the decline in wages is that it impacts on the ability of people to enlarge their homes – which is an answer to have extended families living at the same address.
Some families are already doing this because there is no other way – if you own it, keep it and enlarge it. That’s another option that might get cut off as long as incomes continue to decline.
Where I live in rural Derbyshire, garage sites on some properties on my street have been turned into accommodation for family members waiting accommodation or saving up.
The next crisis that is emerging is overcrowding. And we still have the bedroom tax on the other hand which really is a symptom of a mismatch of available properties to demand and household composition.
There are a number of inter-related problems which have plagued us since the first pension provisions in 1909 and the need to provide social housing especially after WW2. Wages have increased, but not enough for many, especially their inability to save. Pensions have been improved, but not enough for the poorest. Social housing had been built and sold, but many still lack adequate shelter and warmth.
Resolving these issues requires a vision of the future shared by both the electorate and parliament and the willingness of successive governments to continually update pensions and housing policy to achieve ‘fairness’ in a world where the pace of change has continually accelerated.
The reality is that the swing of the political pendulum from left to right and back again has meant that we are now far behind the best in terms of provision for old age. Perhaps the fundamental problem is FPTP – which ensures that this pendulum always swings excessively and that a real national consensus on housing, wages and pensions is never reached.
Age UK report that about 900,000 pensioners are in real poverty defined as 60% of the UK median income of about £25000 after housing costs. This would mean that a pensioner would be on the poverty line with an income of £15,000 pa. However the state pension is only £9400 pa – so I’m not surprised that many pensioners are both cold and underfed.
There’s a good review of the housing crisis in The Guardian —https://www.theguardian.com/business/ng-interactive/2021/mar/31/uk-housing-crisis-how-did-owning-a-home-become-unaffordable? The history is well described, but no new ideas are identified by the authors.
I’m sure that the electorate could define a social order that is fair and equitable for today and for our grandchildren if they were given the places to discuss these thorny issues with experts of all persuasions. Citizens Assemblies would undoubtedly have much to reveal, but without PR and a desire for cooperative politics, progress will be too slow to avoid a continued slide towards the awful US model.
So we need Labour to adopt PR and to actively work with progressives of ALL parties to find ways to resolve these problems with input from the electorate and from local authorities. This cannot be resolved from Whitehall alone.
I live in rural somerset. All the fields around are being built on so soon to be a suburb of Bristol.
But legal migration is running at A Million every three years.
Builders have no incentive to match supply with demand
One crime against humanity was to sell off social housing by the Tories.
A lot of good points made here on the high cost of renting, which clearly impacts on the ability of renters to save for the future.
Is there a case for rental income to be taxed at a higher rate, with the government using the extra tax to fund social housing development? It may have a dampening effect on the ability of landlords to raise rents?
I appreciate this is a multi-faceted problem and it may have undesirable consequences around who operates as a landlord.
All investment income needs to be taxed at higher rates
See http://taxresearch.org.uk/Wiki/2021/11/24/taxing-the-multimillionaires/
Except it is not multi millionaires who have investment income it is folk who have worked all their life and built up savings to supplement pension income..
Do you have any understanding of wealth distribution on the UK?
It would seem not….
Te Right Wing Tory Pressure Group, the Bow Group produced this a few years ago
https://www.academia.edu/23268526/Solving_the_UK_Housing_Crisis_An_analysis_of_the_investment_demand_behind_the_UK_s_housing_affordability_crisis?auto=download
Insofar as it calls for The Government to set a target for average house prices and controls over who can own a property in the UK & what they can do with it they have hit the nail on the head.
As Danny Dorling points out, in terms of bedrooms per head we are far better housed than we ever have been, the problem of course is that some people own to many bedrooms (Multiple Properties} and they are used for non residential purposes
“I have no solutions other than increase the rental stock in public ownership and provide more protection for a tenant that does not fall behind with rent. Both of these are harder to implement in practice than a one line sentence would imply.”
You are quite right. This is a far, far more important issue than is understood; it goes to the root of many of our problems. It rests on a cultural over-obsession with property ownership (since the 17th century, especially in England), now turning into modern rentier neoliberalism. The result is an ignored housing problem that has never adequately even been addressed, still less solved. I will not review the wider history here, but will focus on what I hope prove some salient, basic facts.
In 1961 the population of the UK was 52.8m. If we look at the period when housebuilding was most active in the UK; 1950s-1970s, total households were broadly circa 20m. The housebuilding policy was most famously framed by Harold MacMillan (“you’ve never had it so good”; I leave you to contemplate the Conservative irony); MacMillan’s target was 500,000 new houses constructed each year: 5% of households. In fact over the period outlined actual construction never reached above 350,000-450,000. Nevertheless this was also the peak of public sector house building in the UK, most of it to address slum clearance in our major cities; which provides a clue about the appalling state of the housing stock.
In 2021 the UK population was 68.4m. There are now 27.8m households in the UK. We are currently building around 170,000-190,000 houses per year: <0.07% of households. Public sector housing is neglible, compared with demand. This is precisely how you would design a housing policy if your priority was to ensure asset inflation in house prices, and wealth creation primarily through housing ownership. You do the maths.
You are right
This government wants inflation when it suits it