A little more income doesn't go a long way in retirement housing
As part of the Hanover@50 debate about the future of housing for older people which launched last week, the Fabian Society considered the implications of increasing incomes among older people.
Similarly, a report last year by the IFS suggests that this trend should continue through to the next generation. So what does a more affluent older generation mean for the issue of affordability?
The IFS report looked at how the income of those aged between 50 and state-pension-age compared with their estimated income at retirement. When the findings were compared with older data there was good news. Between 2008 and 2009 and 2010 and 2011, around 11% of future pensioners would have incomes low enough to qualify for means-tested pension credit at retirement, down from 20% in 2004 to 2005. So a lower proportion of pensioners will be living on the breadline in years to come.
But what does that mean for the affordability of retirement housing? Our research looked at the incomes of current pensioners and whether they could afford to live in retirement housing. We found that one aspect of living on the breadline is that things are straightforward. Pensioners on very low incomes (particularly social renters) don't have to worry as much about their costs increasing in later life as their incomes are already low enough that the state will cover the additional cost.
On the other side of the coin, pensioners above the threshold for state help have more to lose. If their costs go up, the state is unlikely to cover all of the increase and their disposable income will fall. In the case of retirement housing even owner-occupiers have monthly housing charges (such as a service charge or sinking fund) and this is unlikely to be eligible for state help. So moving to retirement housing with on-going charges may feel unaffordable even for those on middle incomes.
The system of help with care costs will also become more problematic if there are more pensioners with higher incomes. Under the current system, pensioners fund their own care costs until their remaining income is low enough that the state will make up the difference (this threshold is currently set at £179pw for singles and £272pw for couples). The poorest are already below this line so their costs are covered automatically. But those on high incomes could find that they are reduced to this level if their care needs increase. So even though a lower proportion of pensioners will retire at the breadline many more pensioners may find that they are brought down to this level in due course by the cost of care.
The Government has confirmed that from 2016 the amount individuals will have to spend on care will be capped at £72,000. This provides insurance against limitless spending on care, but until someone's spending has reached this cap, their incomes will be squeezed as they are now.
The Fabian Society argued that, given the increase in middle income pensioners, austerity measures aimed solely at working-age people are unfair and an 'assumption of equality' approach would be preferable. In principle we agree but in practice this isn't straightforward. Pensioners on middle incomes may have enough today and tomorrow but the possibility lurks that one day, due to an increased need for support or care, this won't be the case. Accounting for this sense of insecurity is a formidable challenge, both in designing 'fair' policies and in persuading people that they are indeed fair.
Having fewer pensioners in or close to poverty is unequivocally a good thing, but this is only one step. The next challenge is even harder: how to ensure that this increased affluence actually translates into a better, sustained quality of life through affordable services, and how this affluence can be incorporated into the austerity programme without causing unfair hardship.