Is retirement housing affordable for most people?

Complexity makes it difficult for people considering retirement housing to know if and when they would receive any support.

Is retirement housing affordable? Is it a luxury of richer people with greater wealth or poorer people with access to benefits? Can older people on middle incomes afford it? What affects the cost of living in retirement housing?

Examining income data, price data and government policies, this study found that:

• The complexity of different eligibility and entitlement systems for state help with housing, housing-related support or home care make it difficult for those considering retirement housing to know if, and at what stage, they would receive any support.
• Pensioners should be able to live in retirement housing, with a residual income at or above the 'minimum income' floor Pension Credit and other state help provided after eligible housing costs.
• Middle-income pensioners not entitled to state help are liable to spend the largest proportion of their income on retirement housing. But the structure of state help ensures that their remaining income is not lower than pensioners receiving means-tested benefits.
• Pensioners may find that some retirement housing costs are not eligible for state help, because of their savings, their tenure or how these costs are classified.
• Owner-occupiers and private tenants, regardless of income, often do not get help with many small costs incurred in retirement housing which are covered for most social tenants. Social renters are much more likely to get state help for these costs.

Summary

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Is retirement housing affordable and by whom?

Is it a luxury of richer people with greater wealth or poorer people with access to benefits? Can older people on middle incomes afford retirement housing? What factors affect the cost of living in retirement housing? This study seeks to answer these questions by examining income data, price data and government policies.

Key points

• The Guarantee Credit component of Pension Credit and other state help provides pensioners with a minimum income ‘floor’ after eligible housing costs. As such, pensioners should be able to live in retirement housing, with a residual income at or above this floor.
• Middle-income pensioners not entitled to state help are liable to spend the largest proportion of their income on retirement housing. But the structure of state help ensures that their remaining income is not lower than those pensioners receiving means-tested benefits.
• Pensioners may find that some retirement housing costs are not eligible for state help, because of their level of savings, their tenure or how these costs are classified.
• Owner-occupiers and private tenants, regardless of income, often do not get help with the many small costs incurred in retirement housing which are covered for most social tenants. Social renters are much more likely to get state help with these costs.
• The complexity and inconsistencies of different eligibility and entitlement systems for state help with housing, housing-related support or home care combine to make the financial prospects of living in retirement housing daunting and uncertain. It is difficult for those considering retirement housing to know if, and at what stage, they would receive any support. Systems also vary across England, Northern Ireland, Scotland and Wales.

BACKGROUND

This study looks at the incomes, benefits and retirement housing living costs of the UK’s 10 million people of pension age. Retirement housing is defined as grouped dwellings designated for older people (55/65+). In 2010, there were around 610,000 retirement housing units; 90 per cent were ‘with support’ (e.g. sheltered housing), and 10 per cent ‘with care’ (e.g. extra-care housing); 20 per cent were for owner-occupation and 80 per cent for social renting.

Costs come under three categories: housing (rent, mortgage interest, service charges), housing related support (e.g. scheme manager, community alarm service) and care (receiving care services within retirement housing). This study does not cover residential care homes. It examined how much people in retirement housing would need to spend on housing, support and care from their own funds.

Eligibility and entitlement to state help with retirement costs

State help is a major affordability consideration for pensioners, including, for care costs, those with high incomes. The key question is whether particular costs are eligible for state help. Eligibility can depend on tenure and on UK country. If a cost is eligible, how much help a pensioner is entitled to depends on income and savings. Pensioners must meet ineligible costs, irrespective of income.

Eligibility

Ineligible housing costs are mainly an issue for owner-occupiers. Some costs (e.g. contributions to repairs funds) are always ineligible. What counts as eligible varies among retirement housing schemes and among owners within a scheme. For private tenants, a portion of their rent may be ineligible. Social renters are usually eligible for help with housing-related support costs, whereas private tenants and owner-occupiers are usually ineligible. In Scotland, it matters whether a particular care element counts as ‘personal social care’. In the other UK countries, it is the level of care needed as judged by the social care authority based on Fair Access to Care (FACS) guidelines: ‘critical’ and sometimes ‘substantial’ are eligible, but ‘low’ or ‘moderate’ are usually not.

Help available and entitlement criteria

The Guarantee Credit component of Pension Credit represents a ‘floor’ below which income after eligible housing costs should not fall. In 2012/13, this is £142.70 weekly for a single person and £217.90 for a couple. Pensioners with lower incomes than this receive state help towards their eligible housing costs and their income is topped up to this level. As incomes rise above this floor, pensioners’ contributions towards their housing costs also rise. Social renters receiving housing benefit have their housing-related support costs fully met; other such tenants can still receive help (with some exceptions in both instances). Help with care costs varies across the UK. England and Northern Ireland have an income floor of Guarantee Credit plus 25 per cent; income after eligible care costs should not fall below this. However, savings over £23,250 disqualify pensioners from help with care costs. In Wales, the income floor is slightly higher (Guarantee Credit plus 35 per cent), the savings cap is again £23,250, and there is a £50 a week cap on the amount all pensioners have to pay. In Scotland, personal social care is free for those aged 65 and above. Table 1 summarises state help for housing, care and support costs. The complexity of the different systems makes it difficult for those considering retirement housing to know if and when they would receive any support.

Who pays the extra costs in retirement housing?

A key consideration in deciding on retirement housing is the higher ongoing costs compared with general housing. The study estimated average retirement housing costs and analysed pensioner incomes/savings to see how much income would remain after meeting the costs of retirement housing which are eligible for state help. For most owner-occupiers considering retirement housing, ongoing costs and limited availability are greater deterrents than purchase costs. A typical second-hand one bedroom retirement home costs around £75,000. Around 95 per cent of owner-occupying pensioner households in Great Britain have more than this in