Pensions crisis could add £32 billion to welfare bill

Report warns the Government is facing a retirement ticking time bomb.

Millions of savers could face retirement in poverty unless the Government’s Housing Benefit bill doubles, a new study claims. 

Nearly 25% of people currently saving into Defined Contribution pensions will still be paying rent or mortgage repayments when they retire, research by pensions provider Scottish Widows found. 

If these individuals need to claim Housing Benefit, the welfare bill could increase by £32.1 billion a year. 

Taxpayers will fund a total of £35 billion on Housing Benefit this financial year, meaning the bill would have to almost double. 

Currently, around two million people claim Housing Benefit, although this is set to become Universal Credit for most claimants. 

However, those over the State Pension age will still be able to claim Housing Benefit. 

According to the research, of the 15.3 million people paying into a defined contribution pension, 20% could face a retirement in poverty, while 23% (3.5 million) will have to find around £10,600 to cover housing costs in retirement.  

If they all needed to claim Housing Benefit, the bill would rise to £38.2 billion a year, Scottish Widows claims. 

Pensioners claimed just £6.1 billion in Housing Benefits during 2023-2024 and the full State Pension is currently £11,520.40.

Rent costs ‘100% of average pension income’

The sheer cost of renting privately, especially in the South East of England and in London, is likely to push the bill up, Pete Glancy at Scottish Widows told the Telegraph newspaper.

“The average private rent in the South East is about 100% of the average pension incomes and, in London, it’s 130%,” he said. 

“We need to help more people get on to the property ladder when they’re younger, and for those who will never achieve that, we need an adequate supply of social housing to bring those rental costs down.

“If we don’t, the benefits bill for the country is going to increase significantly at a time when the country can least afford it.”

Navigating the benefits system a ‘minefield’

Meanwhile, Jonathan Watts-Lay, of retirement advisers Wealth At Work, warned that the benefits system can be difficult to navigate and that many pensioners may miss out on their entitlements. 

“The whole benefits system is very, very complex,” he told the Telegraph. “There will be a lot of people out there that don’t understand which benefits they can apply for.

“There’s a category that are just unaware, there’ll be others that try on their own and find it all too difficult, there’ll be those that will persevere and get through the process.

“My concern is that there will be some pensioners that are eligible for benefits that will go without – and history tells us that is the case.”

Find out more about achieving a comfortable retirement here in our handy guide.