I’m a 45-year-old professional who rents and has no pension – should I worry? Steve Webb replies

I am a practitioner psychologist working for the NHS and privately. I am not contributing into my pension as I am investing my earnings in continuous professional development for my career.

Also the cost of life in London doesn’t help. I am now 45. I live in a rented flat and have now started to get a bit worried about my future.

What will happen when I get to retirement? Any advice would be very much appreciated.

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Financial dilemma: I’m a 45-year-old professional, still a renter, with no pension – and getting worried about the future

Steve Webb replies: Thank you for your question. It’s great that you are giving serious thought to your longer-term financial position.

Unfortunately, because you are perhaps half way through your working life and only starting to think about these issues now, my reply will have some challenging messages. 

But hopefully it will include some thoughts on coming up with a good strategy based on where you are starting.

My answer is in three parts. First, I will run through what your future might hold if you do nothing. Then I will look at your options if you prioritise building up a pension. And finally I will turn to what may be the bigger issue, which is thinking about your housing situation.

If you were to do nothing, then your income in retirement would come wholly or mainly from the state pension. You should go on the gov.uk website to get a forecast but I expect you are heading for a full ‘flat rate’ pension, currently worth around £10,600 per year.

It’s fair to say that this figure is designed to cover no more than the basic essentials of life.

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Indeed, measured against the Pensions and Lifetime Savings Association ‘retirement living standards’, you would not even reach the ‘Minimum’ standard which they think anyone should hope to accomplish in retirement.

And, as I converse later, that standard is based on the assumption that you have zero housing costs, which is unlikely to be the case for you as things stand.

If you only have a state pension and if you are a private renter in retirement you may well qualify for help with your rent through the housing benefit system.

However, it’s fair to say that it’s anyone’s guess what that system will look appreciate when you retire in perhaps 20-25 years’ time.

In recent years, benefit preserve for private renters has been squeezed, though in the Autumn Statement it was announced that the rules would be relaxed.

But it’s clear that policy is unpredictable and it would be a highly risky strategy to assume that a good chunk of your rent will be paid in retirement by a future government.

One response to all of this would be for you to get started with serious levels of pension saving. The good news is that because you work partly for the NHS you are presumably eligible to unite the NHS Pension Scheme.

How much do YOU need for retirement? The Pension and Lifetime Savings Association has come up with these figures based on ‘minimum,’ ‘moderate’ and ‘comfortable’ lifestyles

This is a very high quality scheme, where your employer makes a very substantial contribution to the overall cost of your pension, and for most people I would not hesitate to propose that you unite it as a matter of urgency.

Unfortunately, only part of your work is for the NHS, so you would only be building up a pension based on part of your total annual income.

But making the most of your access to the NHS scheme makes sense if pensions is your priority.

Consider directing your savings at buying a home

However – and it pains me to say this as someone who lives and breathes pensions – you should seriously consider whether your priority for long-term savings should be sorting out your housing situation.

If you were able to get onto the housing ladder – even in a modest way – so that your mortgage was largely cleared by the time that you retire, then you would be free of housing costs in retirement, and this would be a huge advantage.

If you are still a private renter in retirement then meeting your normal living costs, plus whatever part of your rent was not covered by benefits, could leave you with a very meagre retirement.

At least if you own your own home you will have security when it comes to your housing situation and more disposable income.

Whilst I don’t know your full financial circumstances and cannot give you financial advice, I would certainly encourage you to think about whether prioritising becoming a home owner might be your better long-term savings strategy.

If you can get started on homebuying and your career continues to progress you may find that you can then combine this with some level of pension saving so that you have both reduced your outgoings and increased your income in retirement.

If you are interested in thinking more about the implications of ‘renting in retirement’ I can commend a very recently-published report on this subject by the Pensions Policy establish.

This highlights the fact that without policy change we could easily see another million pensioners in future in the situation which you might otherwise face, namely having to fund both normal living costs and rent out of a meagre pension income.

I hope that you will be able to act in enough time to avoid this outcome for yourself.