- Bank of England’s base rate reaches 4.25% in blow to retirees with housing costs
- Situation highlights future retirement living standards risk
- Short-term pressure could impact long-term savings
Dean Butler, Managing Director for Customer at Standard Life said: ‘Today’s 0.25% rise in the Bank of England base interest rate, while potentially good news for people whose savings outweigh their borrowing, adds further pressure to the significant minority of retirees who still have a mortgage to pay. Only a year ago we were in a completely different environment – it’s difficult to believe that the rate was still below 1% until last May. The speed and severity of the change has taken everyone by surprise, and retirees who were living quite comfortably in the spring of 2022 might now find themselves struggling, particularly as rate rises have been coupled with double-digit inflation.’
Home ownership and retirement living standards
‘Most estimates of the savings you need to live comfortably in retirement, including the Pensions and Lifetime Savings Association (PLSA’s) Retirement Living Standards , assume no housing costs – however, this is not the case for all. Recent Phoenix Insights* research found 13% of retirees contacted were not homeowners, and so would find themselves paying a mortgage or on the receiving end of a rent increase as a result of higher rates.
Short-term pressure versus long-term planning
‘Retirees struggling to pay for their increased housing costs might naturally be tempted to dip further into their pension savings. While in many cases this will be a sensible decision, there’s always the risk of running out of pension savings later in life. We would urge people to first look at ways in which they can review their budgets and it’s also worth checking entitlement to state benefits - a good first port of call for this is to visit the benefits calculators page on the government website GOV.UK. Many benefits are hugely unclaimed, including Pensions Credit.’