Auto-enrolment hubris cannot mask misgivings on pensions
In the early days of the financial crisis, the pension industry looked to be in a rather good position. Whereas half of the UK high street banking sector fell over, the key names in pensions stood strong, reflecting both better regulation but also undoubted cultural differences.
Things have become a lot tougher since the Bank of England launched quantitative easing and central banks everywhere have tried to push down interest rates. This has hit annuity rates and the value of pension pots. Despite sniping in Westminster that older people have escaped the axe of the government’s fiscal policy response to the crisis, those around retirement age have been hammered by the state’s monetary policy response – and the effect on the incomes of some will be permanent. It is still not clear that the industry or policymakers have fully woken up to the implications of trying to deliver effective pension solutions in the context of much lower long-term rates of return.
But now another alarming challenge is emerging to both the pensions industry and the government’s pension policy, which promises to not just make things harder, but to pull some of the carpet out from underneath the sector.
A slew of research reports are pointing to a structural shift going on in owner-occupation in the UK, with some people considering using their properties as a pension. We have long known that affordability for first-time buyers has been declining, and those “assisted” in purchasing their home by family members now comprise 65 per cent of first-time buyers, according to the Council of Mortgage Lenders.
But the economic crisis is making the situation much, much worse, and various groups are starting to think through the scenarios.
For example, research by Cardiff University for the Joseph Rowntree Foundation projects that the total number of young people owning their own properties in 2020 will decrease by approximately 1.1m to 1.3m in 2020.
One risk is that young people are left renting for so long that it will eventually be too late for them to get a mortgage with affordable repayments before they are due to retire, and so simply never get on the property ladder. Another is that social attitudes change and many young people simply give up. A survey undertaken by NatCen found that shifts in attitudes in younger age groups appear to be occurring. Two-thirds of the 20 to 45 year olds interviewed said they either had no realistic prospect of owning their own home in the next five years because of affordability, or had effectively given up on owning their own home and were not therefore saving toward a deposit.
Why does this matter?
If someone rents in retirement, they will be required to use any pension income they have to pay their rental costs. Only if pensioner renters have no other adequate income are they entitled to means tested Housing Benefit. According to government figures, the average value of housing benefit received by pensioners in 2009-2010 was £69 a week.