The Growing Trend of Private Renting and its Impact on Retirement Planning

Leicester-based financial planner warns of a retirement rental timebomb as recent census shows, the number of households renting privately has doubled in the past 20 years, while the percentage of homeowners has decreased significantly.*

Implications for Retirement Planning

Chartered Financial Planner, Scott Gallacher of Leicester-based financial advisers, Rowley Turton, states that this trend has important implications for retirement planning and urges renters to start planning for retirement as early as possible.

Gallacher states:

“The trend towards private renting and away from homeownership has significant implications for retirement planning. As more people are renting, rather than owning their own homes, they will be paying rent in retirement, which can be a significant financial burden.”

 

Starting to Plan for Retirement Early

With an average rent of £1,174 per month, a 65-year-old would today need a pension fund of £408,964 just to cover their rent. This figure, which ignores any retirement benefits, assumes the purchase of an index-linked annuity taxed at basic rate, i.e. 20%, on retirement at 65. The annuity rate is 4.306% Source – https://www.hl.co.uk/retirement/annuities/best-buy-rates

Gallacher calculates that a 25-year-old renter looking to retire at 65 would have to pay £1,156 a month gross into a pension to cover the rent in retirement**. Allowing for basic rate income tax relief, this is a net contribution of £925 per month.

Options for Renters to Consider

Gallacher says:

“For those currently renting, it is crucial to start saving more for retirement now to ensure they have a stable income during their golden years.

The first step is ensuring they are in their employer’s pension scheme and taking full advantage of it. However, the self-employed don’t have that option and would instead need to set up their own pension scheme.

In addition, renters should probably invest in long-term savings and investment plans to help them accumulate wealth and prepare for retirement.

Additionally, renters should consider alternative options such as Help to Buy, Shared Ownership scheme or Rent to Buy options. These schemes can help renters take their first step on the property ladder and start building equity in their home, which can be a valuable source of income during retirement.”

 

Seeking Professional Financial Advice

Gallacher concludes by encouraging renters to seek professional financial advice to help them plan for retirement and make the most of their money. He states, “It’s important for renters to take control of their financial future and start planning for retirement as early as possible. As financial advisers, we help guide our clients through this process and ensure they are on track to achieve their retirement goals.”

*Source – https://www.theguardian.com/uk-news/2023/jan/05/number-households-renting-more-than-doubled-2001-census-england-wales

**Based on the government’s Money Helper Pension Calculator, adjusted to allow for rent increasing by inflation.