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Matthew BailesMatthew Bailes has served as Chief Executive of Paradigm Housing Group since September 2015. Paradigm manages over 16,000 homes and ...more
Our pension system combined with our housing crisis are a ticking time bomb
A double whammy of low pension savings and high numbers in the private rented sector heads inexorably in one direction: a huge increase in the number of pensioners in poverty, writes Matthew Bailes
A double whammy of low pension savings and high numbers in the private rented sector heads inexorably in one direction: a huge increase in the number of pensioners in poverty, writes Matthew Bailes #UKhousingWhen people think about the pension system, they tend to focus on three things: the basic state pension, private and/or occupational pension, and the means-tested benefits available to pensioners. There are big challenges on all three.
Future pensioners will not wish to rely on the basic state pension, which is both modest and exposed to political risk. Defined benefit pension schemes are all but dead outside the public sector, which means most workers rely on the performance of investments made on their behalf via defined contribution schemes.
Only a small minority are saving the 15% recommended by the last major independent study on pensions, published by the Pensions Commission in 2005. Despite auto-enrolment, almost 20% of private sector employees do not save anything at all. The figures on the self-employed are even more sobering.
This points to a big problem for the government and, therefore, future taxpayers. The ageing population would represent a massive challenge even if workers were saving enough to support their own retirement – thanks to the inevitable increase in demand for health and social care services (as well as the basic state pension). The potential need to top-up retirement incomes through means-tested benefits will make the choices even harder.
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There is also another giant problem that has been largely overlooked. It concerns our dysfunctional housing system.
As things stand, around 80% of pensioners live in homes they own outright. Most of the rest live in social rented housing and, therefore, enjoy security of tenure and rents well below market levels.
Only 5% live in private rented accommodation. However, that figure is growing and is likely to continue to grow. According to the Institute for Fiscal Studies, less than 5% of people born in the 1930s and 1940s lived in private rented accommodation by the time they were 50. The figure for people born in the 1960s, doubles to 10%.
“Despite auto-enrolment, almost 20% of private sector employees do not save anything at all. The figures on the self-employed are even more sobering”
It gets worse: 20% of people born in the 1970s live in the private rented sector into their 40s. Some 30% of people born in the 1980s are renting privately at 35; the same figure for those born in the 1940s was around 7%.
Of course, we cannot be certain how these trends will play out over time, but it is hard to find reasons to be optimistic. House prices have raced ahead of incomes, which means that for many younger people, homeownership feels like an impossible dream, especially as soaring rents make it hard to save for a deposit. Meanwhile, demand for social housing massively outstrips supply, largely thanks to Right to Buy sales and swingeing cuts to investment in new homes.
A double whammy of low pension savings and high numbers in the private rented sector heads inexorably in one direction: a massive increase in reliance on means-tested benefits. Treasury may well end up looking back fondly on recent years when it has “only” spent £6bn per annum on housing benefit for pensioners.
Inevitably, it also means a huge increase in the number of pensioners in poverty and massively increases the risks around homelessness. As recent research from the National Housing Federation highlighted, a quarter of the current cohort of older people living in the private rented sector have been asked to leave their homes and two-fifths struggle to meet basic living costs.
It also risks a growing number of people living in homes that are not adapted to their needs, which in turn will have serious knock-on effects for health and social care services.
The problem also highlights some of the fundamental fault lines in our approach to housing and housing policy.
“Demand for social housing massively outstrips supply, largely thanks to Right to Buy sales and swingeing cuts to investment in new homes”
For example, there seems to be a widespread view that rising house prices make us better off. This is a myth. Rising house prices largely benefit buy-to-let investors and a modest number of people who can downsize. For everyone else, they are a problem, either directly for the growing number of people who can’t afford a decent home, or indirectly for taxpayers who are paying for a growing housing benefit bill.
Then there’s the argument that it would not be prudent to borrow money to invest in social housing. This is only true if you take a short-term view. In the long-term, the failure to invest today means a much higher benefit bill tomorrow. Past failures explain why the UK currently spends way more on housing benefit than any other country that is part of the Organisation for Economic Co-operation and Development. Today’s failures mean that bill will continue to grow rapidly.
Finally, there’s the tendency to consider housing as a standalone issue. It is not. Housing problems create knock-on effects in terms of poverty, health, education, the environment and much else besides. The looming crisis for many future pensioners is just one example – and another illustration of why we desperately need a long-term plan for housing.
Matthew Bailes, chief executive, Paradigm
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