The department for work and pensions’ retirement income ratios may be flawed as they do not include falling levels of home ownership, Pittman Trustees has said.
Richard Butcher, the independent trustee and governance services provider’s managing director, said the RIRs do not take into account changes in the extent of homeownership.
He said this would mean the next generation of pensioners, who have student debts and will be paying their mortgages and rents into retirement, will not have enough income.
Mr Butcher said: “Historically, the cost of living fell around the age of retirement because people paid off their mortgage at around the same time.
“This, of course was not the case if you did not own a home, or if you took out a mortgage later in life.
“Back in 1981 almost a third of 16-24 year olds owned their own home. Now, just one in 10 of 16-24 year olds are in that position, and the trajectory appears to be downwards.
“This implies both that fewer people will own homes when they reach retirement, and that those who do will still have mortgages to pay.”
RIRs are the percentages of working income needed to maintain the same standard of living in retirement. They range from 80 per cent for lower earners, most of which will come from the state, to 40 per cent for higher earners.
Right to reply
A DWP spokesman said: “We have no plans to review replacement income ratios at the current time. The new state pension will provide a simpler foundation on which to make private savings, and automatic enrolment is resulting in more people saving more.”