As we increasingly have to rely on equity in our properties to pay for care in retirement, renters look set to fall further behind home-owners in terms of welfare
The Economic and Social Research Institute (ESRI) has proposed raising the statutory retirement age to 70 — and not for the first time. People are living longer, it argues, so the age at which they retire should be extended. Retirement age is now 66 years, rising to 68 years of age in 2028.
Pushing it out again to 70 would save the government a lot of money. The ESRI’s study suggests that the state pension bill is rising by €1bn every five years due to our ageing population and fewer workers coming up behind them to fill the gap.
The fewer workers we have, the less tax revenue available to pay the pension bill. Less revenue means the spectre of increasing taxes raises its head.
Housing, of course, plays a role. Governments prefer the rising pension costs of an ageing population to be met through private means — which usually means using the house as an asset.
High levels of home-ownership are often used as justification for reducing pension payments. After all, if you own your own home you can use the equity in it to supplement any pension shortfall. The issue is whether we really can rely on our housing as a suitable asset in our retirement.
The first issue is that the house has to be fully paid for, after which you can live on less money — theoretically, anyway. Given the rise in contract work, temporary work and self-employment, it is quite likely that an increasing number of people will not see their housing debt cleared by the time they retire. Likewise, those who struggled to pay their mortgage during the recession and took payment breaks or split their mortgages will surely struggle to finish their mortgage before retirement age.
The result is a combination of an outstanding mortgage debt to be repaid every month along with a much reduced monthly income.
Then there is the issue of relying on, or even needing, ever rising house values. Nobody wants to be in negative equity when the final mortgage payment is made.
Rising house prices also have a negative impact, especially on those trying to buy houses. Home-ownership typically reduces individual poverty but does little to improve collective poverty.
Property values also rise and fall frequently due to factors outside the control of the homeowner. Relying on our house as the asset to support us in retirement is becoming much more of a gamble than a certainty.
In several countries, as the responsibility for supporting ourselves in retirement is increasingly transferred to the individual, the associated pension pots have become commodified — packaged, bought and sold. This often means hefty asset management fees, which also reduce the pot available for pensions.
Rising house values are centrally important to this, and as banks, governments and homeowners like rising house values, the result is often short-term policies that keep house prices high, but do little to mitigate pension obligations.
This results in calls for older retirement ages, rather than better management of the pension system.
Relying on the ownership of a debt-free home to support people in their retirement is all very well if the future retiree already has a home, even one with debt. With up to one-third of Irish households going to rent possibly for their entire lives, nobody is asking how these people are going to support themselves.
It also seems increasingly likely that as we are asked to rely on the equity in our properties to support ourselves, the quality of healthcare we receive will be dependent on how much our house is worth. The greater the value of the house, the more that can be paid for better care. The gap between the housing haves and housing have-nots is rapidly becoming a chasm.