Retirement rental costs to hit £377K per person by 2040s and £660K in London

29% of new retirees on course to rent in England by 2030s, according to calculations by interactive investor.

interactive investor research estimates that the total cost of renting throughout retirement will be as high as £660K by the 2040s. A woman retiring in 2043, paying the average rent for a one-bedroom flat in England and living for the average expected life expectancy, can expect to pay £377K in rent throughout retirement from age 66-plus, whereas a woman living in a one-bedroom flat in London could be paying as much as £660K on rent in retirement from age 66-plus (full figures in note 1).

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Office for National Statistics (ONS) figures reveal that 29% of those aged 55-64 years olds in England are currently renting and are on track to be renting in retirement. 34% of 45–54-year-olds are now renting, compared to only 19% in 2004, and 29% of 55–64-year-olds are now renting compared to 18% in 2004. There could be 860K more households privately renting in England in retirement by the 2040s – based on the number of additional households aged 45-64 who are currently in private rental accommodation, compared to 2004, costing £11 billion more in rent each year to the UK as a whole (full figures in note 2 - the figures are only available for England).

Note 1

Assumptions: figures based on 2022 rental costs for one bed flat in England and London uprated for inflation, total cost based on ONS average life expectancy figures, 5% investment growth, 2% rental increase.

Sources: Index of Private Housing Rental Prices, Actuary report (state pension review), ONS life expectancy figures.

Alice Guy,Head of Pensions and Savings at interactive investor says: “There’s a whole heap of pain heading for future retirees as up to one-third of older households could soon be renting in retirement.

“At the moment, most people reach retirement with their mortgage paid off and virtually free housing. But all that’s about to change, as owning your own home is now out of reach for many individuals and families who are destined to stay renting into their golden years. They will lose out on the financial security and choices that owning your own home brings.

“They could face an astronomical £377K average rental bill throughout retirement if they retire in the 2040s. Although housing benefit may cover some of these costs, there is often a significant gap, leaving many pensioners with a shortfall and a huge potential headache.

“Many pension illustrations, such as the PLSA Retirement Living Standards are based on having no housing costs in retirement. If you're renting, then you’ll need a much bigger pension pot for a comfortable retirement.

“Building wealth and financial resilience is a lifelong journey and missed steps along the way can have long-term consequences. The scary reality is that not managing to get on the housing ladder in your 20s, 30s or 40s may shape the kind of retirement you can expect in the future.

“We already know that most people aren’t saving enough for a comfortable retirement, but that’s compounded once you take rent into account. A modest pension pot of £100,000 could soon be wiped out if you’re renting during retirement. In fact, a woman renting a one-bedroom flat in England would need an extra £230,000 in her pension pot by the 2040s to fund renting, on top of her existing pension income.

“It’s a nightmare for the Treasury. Wealthy pensioners cost the government less as they don’t need to rely on benefits, saving the taxman from subsidising their income through housing benefit or paying for their own care home fees. But with more pensioners entering retirement with no substantial assets, on top of an ageing population, the Treasury will need to find a way to balance the books. Any future tax rises will potentially increase the burden on the working population.

“The one silver lining is that housing prices have slightly fallen this year. If house prices stagnate while wages rise, it may allow some older workers to get on the housing ladder for the first time, while others may inherit enough in the future to help them buy a house. If you can afford to, it’s worth considering getting on the housing ladder before you retire, even if your mortgage lasts into retirement. Once your mortgage is paid off, you’ll have more certainty about your future outgoings and potentially more financial flexibility in the future.”

Note 2

Assumptions and sources: average annual rent for one-bed flat in England, £8,795 per year based on ONS rental data, £13,069 by 2043, rental households based on English Housing Survey.