Only 18 per cent of renting households are on track to achieve a moderate retirement income, according to new data from the HL Savings and Resilience Barometer for July 2023.
This represents a decline from the previous year’s figure of 20 per cent. The study highlights that single-parent households, 17 per cent, and self-employed individuals, 24 per cent, are vulnerable to this trend.
Last year, 20 per cent of single-parent households and 28 per cent of the self-employed were projected to attain a moderate retirement income.
Only 19 per cent of Millennial and Generation X households that rent are predicted to have a modest retirement income, compared to 50 per cent of their counterparts who buy their homes. Similarly, for households belonging to Generation X and Baby Boomers, only 15.5 per cent of renters and 56 per cent of homeowners are on track.
The HL Savings and Resilience Barometer, July 2023, underpins these findings, highlighting the pressing need for improved financial strategies among renters to secure a stable retirement income.
Hargreaves Lansdown head of retirement analysis Helen Morrissey says: “Retirement resilience continues to slide, leaving more vulnerable groups even further away from being able to enjoy a decent retirement. A heady mixture of rising prices today makes it more difficult to save for tomorrow and the cost of funding a moderate retirement income is being pushed ever higher.
“The cost of funding a moderate retirement income has soared from £20,800 to £23,300 per year for a single person according to the Pensions and Lifetime Savings Association and given that our wages, savings and investments have not grown at the same rate it’s an enormous challenge that keeps getting bigger.
“Single parents already have a tough time making ends meet in comparison to their coupled-up counterparts. We did an analysis earlier in the year showing the average single person’s outgoings are £860 more a month as they have to fund the cost of housing, food and bills on their own.
“This flows through into retirement, with the latest data from the Pensions and Lifetime Savings Association putting the cost of a moderate retirement at £23,300 per year for a single person and £34,000 per year for a couple. If you add a child into the mix, then their money needs to stretch even further and this can mean it’s difficult to find the money to put into a pension.
“Renters also face an uphill challenge when it comes to saving for retirement, as rising rents take a chunk out of their income. This gives them less money not only to save for retirement but also to get that all-important first step on the housing ladder.
“This means they either buy much later or not at all and face paying housing costs later into retirement – if they never get on the housing ladder then they need to fund rent for the rest of their lives. These costs are significant and push up the amount that needs to be saved for retirement but yet again the financial pressures of today just don’t allow for it for many people.
“Lifetime ISAs can play an important role in helping people get on the housing ladder while also saving for retirement. You can save up to £4,000 per year and receive a 25 per cent government top-up. Over time this can help you amass a decent deposit for your first home, and you can continue to save for it for retirement.
“There are things you need to consider -the home you buy with a LISA must be worth less than £450,000 which may be a tough ask for those in South-East England and any withdrawals from the LISA for a reason other than home purchase or retirement attract a nasty 25 per cent penalty. However, they are a good way to build your savings.
“LISAs can also be of real benefit to the self-employed who may be hesitant to save into a pension because the money cannot be accessed until age 55 (57 from 2028). This means you cannot get your hands on your money to see you through any ups and downs you may experience with your work.
“LISAs do allow early access subject to the 25 per cent penalty and the bonus you receive works in a similar way to basic rate tax relief that you would get on a pension. For groups like the self-employed who don’t benefit from an employer contribution to their pension LISAs could prove an attractive prospect.”
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