Renting in retirement: how much do you need in your pension pot?

Renting in retirement is likely to become more common over the next two decades, as high house prices and a more challenging mortgage backdrop create barriers to homeownership.  

Research from the Pensions Policy Institute and Aviva reveals as many as one in six retired households could be private renters 20 years from now. That’s a significant increase compared to today, when around one in 20 retired households rent.

Renting is expensive – and has become increasingly so in recent years. However, this poses a particular problem for retirees who, with the exception of their state pension, are often on a fixed income. 

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Meanwhile, those in employment can work towards a pay rise or look for additional work. Once they have saved up enough money, they can also apply for a mortgage in an attempt to get on the housing ladder – a route that is only open to those who are still earning. 

This comes against an already challenging backdrop. The cost of retirement has soared since 2021, when inflation started ticking upwards in the wake of the pandemic. 

Figures from the Pension and Lifetime Savings Association (PLSA) reveal that you now need £43,100 per year for a comfortable retirement if you’re a single person, or £59,000 for a two-person household. 

For even a basic retirement, you now need £14,400 per year (or £22,400 for a couple). It’s worth mentioning that the basic retirement figures don’t allow for the costs of running a car, and none of the figures include housing costs. 

If you are renting or you haven’t finished paying off your mortgage, you can expect your annual expenses to be considerably higher than this. 

How much does renting in retirement cost?

The average cost of renting in England is £1,301 per month, according to the latest figures from the Office for National Statistics. That’s 8.7% more expensive than a year ago. 

Meanwhile, the average monthly rents in Scotland and Wales are £957 and £736 respectively.

Of course, the figures vary depending on the size of your house and where you live. If you live in a city like London, for example, you can expect to pay considerably more.  

Projecting current rental costs forward, pensions company Standard Life suggests pensioners who rent in retirement could need almost £400,000 more in retirement savings. 

The pensions company arrived at this figure by looking at average rents across the UK as a whole and accounting for an annual increase of 2.5% – the average annual rent increase since 2016. It then multiplied the annual cost by the average life expectancy after state pension age. 

“In reality, year by year rental increases will vary subject to factors including inflation and interest rates, however these figures give an indication,” Standard Life adds.

“For many people, their home not only has emotional significance, but it is also something they may expect to rely on in retirement,” says Claire Altman, managing director of individual retirement at Standard Life.

“However, if house prices continue to rise, people will increasingly need to think about how they will meet essential housing costs in retirement,” she adds.

How to boost your retirement pot

It is never too early to start saving for retirement – careful planning from a young age is the best way to maximise your golden years. 

There are several strategies you can take to boost your pension pot. Avoid opting out of your workplace pension scheme and, if you are able, consider topping it up with voluntary contributions. 

Pension contributions are eligible for valuable tax relief from HMRC and your employer might even match any additional contributions, up to a certain limit. This is essentially free money. 

If you take time out of work to look after children, make sure you claim Child Benefit to qualify for valuable National Insurance credits, which count towards your state pension. 

Meanwhile, if you are self-employed or want to supplement your existing pensions, consider setting up a private pension or self-invested personal pension (SIPP). 

Of course, if at all possible, your finances will probably benefit from getting on the housing ladder before retirement age – although this isn’t possible (or indeed preferable) for everyone. 

Likewise, “consideration will need to be given to the trade-offs between saving for retirement and getting on the housing ladder,” Altman adds. 

Putting money towards a deposit or upping your mortgage repayments will increase your chances of owning your own home by the time you retire, but paying the money into your pension allows you to benefit from potential tax reliefs.