Memorandum-to-the-Prime-Minister-on-Unaffordable-Housing

Appendix 11 - High housing costs
and low pensions
Some recent evidence
(Peter Ambrose and Toby Lloyd of <strong>the</strong> London Rebuilding Society)
It is intuitively plausible that high housing costs will fur<strong>the</strong>r reduce <strong>the</strong> capacity of poorer households <strong>to</strong> invest
in personal pension arrangements. In <strong>the</strong> 2003 study of 24 workers in Brigh<strong>to</strong>n and Hove earning substantially
below <strong>the</strong> Low Cost but Acceptable level (Ambrose 2003) it was found that only 10 were members of a final
salary-related pension scheme. In this sample eight of <strong>the</strong>se were local government workers who are fortunate
in being able <strong>to</strong> benefit from an excellent occupational pension scheme.The remaining 14 in <strong>the</strong> sample (whose
average age was 37) were not in a position <strong>to</strong> make provision for <strong>the</strong>ir retirement although several said, when
asked how <strong>the</strong>y would spend additional income, that such provision would be a high priority.
The Pensions Commission
The recent preliminary report from <strong>the</strong> Pensions Commission (Pensions Commission 2004) makes <strong>the</strong>se points
(page xi):
‘Given present trends many people will face ‘inadequate’ pensions in retirement, unless <strong>the</strong>y have
large non-pension assets or are intending <strong>to</strong> retire much later than current retirees...Our estimates
suggest that around 9 million people may be under-saving, some by a small amount, some severely.’
It is evident that many homeowners may be increasingly dependent on <strong>the</strong>ir housing assets <strong>to</strong> provide <strong>the</strong>n with
a pension in some form. In a recent survey 46% of homeowners expected <strong>to</strong> access <strong>the</strong> equity in <strong>the</strong>ir home <strong>to</strong>
fund <strong>the</strong>ir retirement (Smith 2004). But <strong>the</strong>re are many uncertainties here, not least <strong>the</strong> poor value for money
of many equity release schemes currently on offer.The Commission’s report points out (ibid, page xii):
‘While <strong>the</strong> liquidation of housing assets during retirement will likely remain limited in scope, <strong>the</strong>
inheritance of housing assets by people who already own a house may play an increasing role in
retirement provision for many people. But house ownership does not provide a sufficient solution
<strong>to</strong> <strong>the</strong> problem of pension provision given (i) uncertainty over future house prices; (ii) o<strong>the</strong>r
potential claims on housing wealth such as long-term care; and (iii) <strong>the</strong> fact that housing wealth is
not significantly higher among those with least pension rights.’
This, like <strong>the</strong> point about ‘under-saving’, seems <strong>to</strong> under-state <strong>the</strong> problem. Given <strong>the</strong> scale of <strong>the</strong> pensions
shortfall and <strong>the</strong> amount of housing wealth that has accumulated among <strong>the</strong> elderly, <strong>the</strong> regressive distributional
consequences of increased reliance on inherited property wealth are extremely serious.While some stand <strong>to</strong>
inherit substantial assets, <strong>the</strong> number of people with no assets at all has doubled over <strong>the</strong> past 20 years (Wilcox
2003b). A very high proportion of <strong>the</strong> poorest households have a housing wealth of zero so this route <strong>to</strong> a postretirement
income simply does not exist for <strong>the</strong>m. Of <strong>the</strong> 25 people in deep consumer debt interviewed in <strong>the</strong>
recent Brigh<strong>to</strong>n and Hastings study of debt as an impediment <strong>to</strong> moving in<strong>to</strong> work (Ambrose and Cunningham
2004) only one was a homeowner.
Zacchaeus 2000 Trust - <strong>Memorandum</strong> <strong>to</strong> <strong>the</strong> <strong>Prime</strong> <strong>Minister</strong> - May 2005 69