GENERATION RENT-IREMENT: OVER 50s RENTERS FACE 43BN SHORTFALL TO COVER RENT IN RETIREMENT

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1 GENERATION RENT-IREMENT: OVER 50s RENTERS FACE 43BN SHORTFALL TO COVER RENT IN RETIREMENT One in eight retirees will be renting by 2032 treble today s figure Renters aged 50+ need to save more than 6,000 extra each year to cover growing rental costs in retirement Almost four in ten renters would relocate for cheaper rent once they retire Over 50s renters are not saving anywhere near enough to cover their rental costs in retirement, leaving a 43 billion shortfall five times the cost of the London 2012 Olympics according to research from Scottish Widows as part of its Retirement Report series. (1) The projections, calculated for Scottish Widows by Development Economics, predict that one in eight retirees, equating to over 1 million people (2), will be living in rental accommodation in 15 years, treble the current number, and 42% of the average retirement income will be spent on rent. (3) The average renter planning to retire in 15 years time needs to save an additional 525 every month into their pension 6,300 a year on top of current pension contributions, or work for an additional 5.1 years to cover growing rental costs in retirement. (4) Despite the looming crisis, more than two thirds (67%) of year olds planning to rent in retirement have no plans to increase their pension contributions to cover this shortfall. 68% of those who would consider upping their contribution say they cannot afford to do so without a pay rise or significant compromise elsewhere. (5) A country-wide problem The research paints a bleak picture for renters across the UK, but certain regions will be hit disproportionately hard. As the surge in prices becomes increasingly unmanageable in London and demand for property in surrounding regions grows, pressure is expected to spread to the South East and East of England. In comparison, Northern regions and Wales will remain the most affordable.

2 Proportion of pensioner income spent on rental payments Region UK 32% 36% 39% 42% North East 23% 24% 24% 25% North West 25% 26% 27% 27% Yorkshire & the Humber 25% 25% 26% 27% East Midlands 23% 26% 27% 28% West Midlands 28% 30% 33% 35% East of England 30% 34% 39% 45% London 66% 70% 75% 80% South East 30% 32% 35% 39% South West 27% 30% 31% 33% Wales 20% 22% 22% 24% Scotland 29% 29% 30% 30% Northern Ireland 23% 25% 26% 27% Figures calculated by Development Economics, September 2017 Eastbourne and Norfolk are out Newcastle, Swansea and Glasgow are in All too aware of the challenges ahead, renters across the country are also considering relocating for cheaper rent. Almost four in ten (39%) people planning to rent in retirement would relocate rising to 65% in London, where rental prices continue to skyrocket. Region Proportion of year olds planning to rent in retirement who would relocate to the following, cheaper rental locations North East 18% Wales 14% Scotland 14% South West 11% North West 9%

3 A ticking time-bomb? The situation is set to worsen, as more people struggle to step onto the property ladder. More than a quarter (27%) of renters under the age of 45 don t think they will ever be in a position to buy a property. Even among those who hope to buy a house one day, 15% anticipate they will still be paying off their mortgage well into retirement, rising to 26% of year olds. Robert Cochran, Retirement Expert at Scottish Widows, said: Generation Rent is a term often applied to younger generations, but our research shows that the problem extends right to the other end of the generational scale. The number of people renting in retirement is set to treble over the next fifteen years, but alarmingly few people are thinking about how they would cover the growing cost of a property lease when they stop working. Whilst some people may choose to rent later in life, we also need to ensure it s a more sustainable, secure option for an ageing population many of whom will have no choice. We re therefore urging the government to consider ways to refine the housing market to better suit older renters through options such as open ended tenancy, with predictable rents and protection. Douglas Cochrane, Head of Housing Development, Lloyds Banking Group, said: As this report recognises, renting in retirement can be a conscious choice and when making such a choice it is important that all financial implications for paying rent into retirement are fully understood. The importance of saving through pensions or other investments to offset later in life rental costs cannot be underestimated. The white paper Fixing Our Broken Housing Market published in February 2017 refers to meeting the needs of an ageing population through appropriate housing provision. This report recognises not only the financial need, but importantly the need to build the right type of property suitable for later in life living. Dan Wilson Craw, Director, Generation Rent, said: The common perception is that retirees either own their home outright or have a council tenancy, so the government will be in for a nasty shock as more of us retire and continue to rent from a private landlord. Many renters relying on pensions will qualify for housing benefit which will put greater strain on the

4 public finances. The government can prepare for this by ensuring it delivers on its plans for 300,000 homes a year in order to bring rents down. More people facing a lifetime of renting also makes it essential that we make tenancies more secure to give tenants more stability in their lives. ENDS Notes to editors 1. Projections calculated by Development Economics, September billion national deficit is calculated based on the number of additional >65 households expected to rent each year between 2018 and Figures are calculated using the average annual savings needed for each group retiring in each year, and multiplied this by the number of years to go before retirement is assumed. The breaks down as follows: - Those expecting to retire between 2018 and 2022: an extra 3.2 billion of savings needed in total - Those retiring between 2023 and 2027: 12.0 billion in total - Those retiring between 2028 and 2032: 28.0 billion in total 2. Projections for the number of people set to be renting in retirement were calculated on behalf of Scottish Widows by Development Economics, based on data published by the House of Commons Research Library, June 2017 Category Private renting, all UK households ( 000s) 4,817 5,893 7,281 9,081 Private renting, over 65 households ( 000s) ,109 Proportion of all households renting who are aged 65 or over 8.0% 9.3% 10.7% 12.2% 3. The starting point for the development of future national and regional estimates for average pensioner monthly household income and average monthly private rental costs were the historic trends in these datasets for the period since 2010 published by the Office for National Statistics. These past-trends datasets were adjusted to take into account recent, current and expected future earnings potential and likely future accommodation preferences by the over-50s including affecting retirement and living arrangements post-retirement that were revealed by the bespoke householder survey commissioned as part of this research programme and undertaken by Opinium. 4. Figures for anticipated additional saving required to meet growing rental costs were calculated using forecast values for average accommodation rental costs and expected future retiree incomes. The divergence in expected future rental costs as proportion of income is assumed to be compensated from additional savings income generated extra savings effort between now and retirement, and assuming average annual return on retirement savings and investments of 5% p.a. Years until retirement Additional sav ing required Additional years required to work (assuming no additional sav ings) 5 years 540 per month ( 6,470 per year) 1.7 years 10 years 533 per month ( 6,400 per year) 3.6 years 15 years 525 per month ( 6,300 per year) 5.1 years

5 5. The research was carried out online by Opinium across a nationally representative sample of 2,000 people between 12th and 16th October An additional 1,094 online interviews with UK adults who do or would consider renting in retirement and 1,005 online interviews with UK private renters were conducted within the same timeframe About Scottish Widows Scottish Widows was founded in 1815 as Scotland s first mutual life office and is one of the most recognised brands in the life, pensions and investment industry in the UK. In November 2017 Scottish Widows won Company of the Year at the Financial Adviser Service Awards, along with 5 Star service awards in each of the individual categories of life & Pensions, Investments and Mortgages. Scottish Widows also won a number of other awards throughout 2017, including Pensions Firm of the Year at the FD Service Excellence Awards, Pensions Provider of the Year at the Pensions Age Awards, De -Risking Provider of the Year at the Pension and Investment Provider Awards and Risk Reduction Provider of the Year at the UK Pensions Awards. About Dev elopment Economics Development Economics Ltd is an independent research consultancy providing economic and demographic research, market analysis and consultancy advice for corporate, public and third sector clients. Services include labour market and skills analysis, demographic and social research, and the production of economic impact assessments, feasibility studies, demand assessments and funding bids. The content of this news release is intended for information only and should not be relied upon for making investment decisions. Whilst every effort is made to ensure the content of this news release is accurate at the time of publication, Scottish Widows plc disclaims liability for any losses, disputes or claims which may arise as a result of the use of this information. For further information please contact: Kevin Brown, Scottish Widows: kevinbrown2@lloydsbanking.com / Lorna Waddell, Scottish Widows: lorna.waddell@lloydsbanking.com / Jack Williams, Cohn & Wolfe: jack.williams@cohnwolfe.com /