Despite many older renters living below the poverty line, new research conducted by the Pensions Policy Institute (PPI) for Independent Age uncovers that the current pensions system penalises this group if they have managed to save into a small private pension. A small change to Housing Benefit rules could make a meaningful difference to many.
Do Pension Savings Pay for Older Renters?
At Independent Age, we have long been concerned with the challenging situation faced by older renters. Meeting housing costs in later life on a small income means many renters face financial hardship, and poverty is much higher for private renters than for the general older population (32% compared with 16%). We also know that private renting is on the increase with fewer people owning their own homes, and less social housing availability. Our previous research in 2023 showed that by 2040, the proportion of people aged 65+ living in the private rented sector will treble from 4% to 13% (2.2 million people in total), and this could see the poverty rate for people aged 65+ double.
My rent has just gone up to £750 a month – my income is £1,299 before all my bills are paid. My outgoings are roughly £1,100 before food. My State Pension income is £10,400 per year. It’s barely enough to manage. I’m in a constant state of disbelief as to why the government can possibly think that this is a reasonable amount to live on. I’m just about surviving.
Many older private renters find themselves in financial hardship despite having private or occupational pensions saving, and we believe there is a significant issue with how the Housing Benefit means test treats pensions savings and income. It means private renters with small private or occupational pensions receiving Housing Benefit are often seeing very little benefit from what they have saved, and many face financial hardship as a result. We asked expert researchers at the Pensions Policy Institute (PPI) to conduct some modelling to explore the issue further, and consider whether some form of ‘pensions income disregard’ could help those in this position.
Take a look at the research: Do Pension Savings Pay? | Older Renters & Housing Benefit
The interaction between private pensions and Housing Benefit
Because of how the Housing Benefit means test works, even small amounts of private pension income (and State Pension income) over the Housing Benefit personal allowance fall into what is assessed. The additional £1 per week in private pension over the Housing Benefit personal allowance reduces Housing Benefit by 65p, leaving only a 35p improvement to disposable income. As the Housing Benefit personal allowance sits just below the value of the new State Pension, if someone is on the full amount of the new State Pension, all their private or occupational pension income is subject to this taper.
This means under the current rules, someone with £37 per week in private pension income (on top of a full State Pension), would see their Housing Benefit being reduced by £24, leaving them with just £13 per week from their pension.
As well as presenting a serious income problem for those affected, it also presents a disincentive to save into their pension for those who know they will be renting in later life.
A ‘pensions disregard’ could boost incomes for low income renters and reduce disincentives to save
One policy option to improve retirement adequacy for low-income renters is to disregard the first part of their private pension income in the Housing Benefit calculation, meaning that a certain amount of a person’s private pension income would not reduce their Housing Benefit.
This research explored three levels of disregard, £25 a week, £50 a week and £75 a week.
Case study from the research*
Roy is an older private renter and receives £87 per week in a private pension. If the first £25 of Roy’s private pension were disregarded, his Housing Benefit would rise from £66.30 to £82.55 a week and he would keep £46.70 of the £87 private pension after the benefit offset. With a £50 disregard, he would keep £62.95. With a £75 disregard, he would keep £79.20, or around 91p of each £1.
*Case studies in the research are fictional scenarios which illustrate how changes would work in different situations
At Independent Age we know these amounts of money can be the difference between an adequate weekly budget and stark financial choices which compromise dignity. In the worst cases, if rent cannot be paid, it can result in homelessness.
If the maximum modelled disregard were applied (£75), this would support people with pension pots of up to about £49,000. A pension pot of this size is indicative of someone who had some ability to save for retirement but has either been in long term low paid work or perhaps has an interrupted career history, for example due to health conditions, or caring for children or a family member
A disregard would mean more people become eligible for Housing Benefit and increase the amount for some of those already in receipt. Under current rules, there are 1.39 million older people eligible for Housing Benefit, with about 1.05 million actually receiving it (because take up is not 100%). If a £50 pension disregard was in place, this would bring about 40,000 new older renters into eligibility, and 130,000 existing recipients would see their awards increase.
A message for the UK Government and the Pensions Commission
We know that changes in housing tenure for people past State Pension age and the impact on retirement incomes in the coming decades is a serious concern and on the radar of both the UK Government and the Pensions Commission. Changes to pensions policy alone are not enough. Solutions such as a pensions income disregard, through the social security system, is a way of targeting support at those who will need it most and are at high risk of poverty despite having some pension savings.
A disregard would be a positive step but rents also need to be affordable
This policy change would make a substantial difference to the lives of many people who end up renting in older age, but the continued mismatch between private rents and Housing Benefit levels will remain a significant issue. The inadequacy of Housing Benefit overall means that many low-income renters of all ages have to find the shortfall between their Housing Benefit and the actual rent amount from their remaining income, contributing to why poverty among older renters is so high. Local Housing Allowance – which dictates the value of Housing Benefit – has been frozen on and off for many years, which means it fails to keep pace with local rents. A pensions exemption would go some way to improving things for those in this position, but Independent Age also recommends that the UK Government uprates Local Housing Allowance to ensure it covers at least the cheapest 30% of local private rents and to uprate it annually to reflect changes in rents.
Independent Age is the national charity focused on tackling financial hardship in later life. If you’d like to know more about our policy or research, you can contact policy@independentage.org
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If you are past State Pension age and struggling to make ends meet, we have free information and advice which you can access online or by calling our free Helpline on 0800 319 6789.
