Pension Policy Institute research has found retirees saving into private pension pots are losing Housing Benefit despite being eligible
Around 330,000 retirees are being "dragged into financial hardship" by the current Housing Benefit system, damning new research has revealed.
New research from the Pensions Policy Institute has found that thousands who saved into private pensions are effectively being punished by existing rules, losing an average of £50 per week in reduced or eliminated entitlement.
The study, titled Do Pension Savings Pay? and funded by Independent Age, reveals that for every £1 of private pension income a retired person receives, their Housing Benefit is cut by 65p, leaving just 35p of genuine benefit to their disposable income.
This steep taper rate exists because even modest private pension income is immediately counted within the means test used to determine Housing Benefit awards.
The research also highlights that the way pension wealth is structured can be as significant as the total amount saved.
Despite these restrictive eligibility rules, the PPI projects that Housing Benefit expenditure will surge by £3.4bn over the next two decades, reaching that figure by 2044.
This anticipated rise is driven by two converging trends: a growing population of retired people and a sharp decline in pensioner home ownership, which is forecast to drop by 14 percentage points.
By 2044, roughly one in three pensioner households is expected to rent rather than own their home, a dramatic shift from patterns seen in previous generations.
To tackle this perverse incentive, the PPI's analysis proposes a disregard mechanism that would shield a portion of private pension income from the 65p taper rate applied in Housing Benefit calculations.
Under this model, a £25 weekly disregard for a retiree receiving the full State Pension alongside £100 per week in private pension income would boost their disposable income by £16.25 per week by increasing their Housing Benefit eligibility.
The PPI estimates such a policy would bring approximately 20,000 additional pensioners into the Housing Benefit system at a cost to the Treasury of around £100m.
John Adams, PPI senior policy analyst and lead author of the research, said: "The interaction between Housing Benefit rules and private pension income is working against eligible retirees, at a time when more pensioners facing spiralling retirement rental costs.
"With housing costs in retirement set to look markedly different to the last generation, policymakers will need to consider how they reach the right balance to ensure Housing Benefit support works as intended."
Joanna Elson, CBE, Chief Executive of Independent Age, said: "As this important research shows, the Housing Benefit system isn't working for older renters on low incomes, especially those with small pensions.
"Reducing the already inadequate rental support they receive is a disproportionate response to the tiny amounts of income the pensions provide."
