Renting in retirement is set to become far more common over the coming decades, according to new research from the Pensions Policy Institute (PPI), which warns of a growing "fault line" beneath the UK pension system.
The PPI's report, "Renting in Retirement – The Fault Line Below the UK Pension System," produced in association with Aviva as part of the PPI UK Pensions Framework Series, models how retirement outcomes could shift as fewer people reach later life owning their own home.
The analysis shows the proportion of households owning their home in retirement could fall from 78% to 63% by 2041, while the proportion living in the private rented sector could rise from 6% to 17%. Social housing levels are expected to remain broadly unchanged.
By 2041, up to 1.7 million pensioner households, around 17% of the total, could be renting privately, more than three times today's figure. Overall, the number of households renting in retirement could reach 3.6 million, an increase of around 1.2 million in the private rented sector alone. Very few of these renters are expected to have adequate savings to cover both rent and living costs.
A couple aged 45 to 64 today on median income may need to double their total assets, or more, to privately rent even a one-bedroom flat outside London through later life.
The PPI has also pointed to knock-on pressure on the welfare system, estimating that up to 400,000 more households could become dependent on housing benefit to afford their home. This comes at a time when the sustainability of the benefits system, including the freezing of the local housing allowance, is already under scrutiny. The institute's modelling suggests the decline in homeownership could push up rates of relative and absolute pensioner poverty by around 2%.
Anna Brain, research associate at the PPI, said the findings quantify risks that have not featured widely in recent policy debate. She explained that a series of increasingly outdated assumptions about how future pensioners work, live and save is putting strain on the wider UK pension system.
Industry voices have echoed the concern. Kate Smith, head of pensions at Aegon, linked the rise in private renting among retirees partly to government housing policy, making ownership less affordable, noting that demand for rented accommodation is outstripping supply and pushing rents higher.
She added that very few renters in retirement will have enough income to cover both housing and living costs, with growing numbers likely to depend on state benefits to help pay rent.
Laura Mason, chief executive officer of retail at L&G, welcomed the renewed focus on the issue. "It's critical for housing costs to be considered as a key element of how future generations will experience retirement, and we welcome the ABI's focus on this issue," she said.
"L&G's own research, conducted as part of our multi-year Decades Ahead programme, highlighted that renting into retirement will become increasingly common and that the prospects for future renters and future homeowners will vary significantly. While a majority (58%) of future homeowners will achieve an adequate retirement, this drops to only 30% for private renters."
She added: "That's why we introduced a new measure of retirement adequacy, Minimum, Replacement, Rent (MMR), which assesses whether future retirement income meets a minimum standard of living, replaces a proportion of pre-retirement earnings, and covers housing costs for renters."
For landlords and property investors, the research points to a structural shift in demand. As fewer people retire owning their own homes, the pool of older tenants relying on the private rented sector for stable, long-term housing looks set to expand significantly over the next two decades, adding a new dimension to demand in a market that has traditionally been driven by younger tenants and professionals.
