330,000 UK Pensioners Lose an Average of £2,600 a Year in Housing Benefit Under DWP Rules

More than 330,000 pensioners across the United Kingdom are receiving reduced or no Housing Benefit because private pension income is included in the current Department for Work and Pensions (DWP) means test, according to new research from the Pensions Policy Institute (PPI).

Under the current rules, every £1 of private pension income reduces a claimant's Housing Benefit entitlement by 65p. The PPI said this leaves many low-income pensioners with only 35p of additional disposable income for every £1 withdrawn from a private pension. Even relatively small amounts of private pension income are immediately included in the assessment, reducing or removing support for many otherwise eligible pensioners.

The findings, published in the report Do Pension Savings Pay? and funded by the charity Independent Age, come as increasing numbers of older people are expected to rent in retirement. Researchers said the interaction between Housing Benefit rules and modest private pension income could discourage retirement saving while reducing support for pensioners on low incomes.

Reduced Housing Benefit for Pensioners

The report estimates affected pensioners lose an average of around £50 a week (approximately $67), or approximately £2,600 a year (around $3,400), through reduced Housing Benefit entitlement. Researchers also found that the way pension savings are accessed can affect Housing Benefit entitlement as much as the amount saved because private pension income is immediately included in the means test.

John Adams, senior policy analyst at the PPI and lead author of the report, said the current rules were working against many eligible retirees as housing costs increased. He said policymakers should consider changes that better aligned retirement saving with Housing Benefit support.

The PPI projects around one in three pensioner households could be renting by 2044 as home ownership among older people falls by an estimated 14 percentage points. As a result, Housing Benefit spending could increase by around £3.4 billion ($4.5 million) a year as more pensioners rely on rented accommodation later in life.

Report Calls for Housing Benefit Rule Changes

The report recommends disregarding the first £25 ($33) of weekly private pension income when assessing Housing Benefit entitlement, arguing the change would reduce the financial penalty faced by pensioners with modest private savings. According to the PPI's modelling, the proposal would extend eligibility to around 20,000 additional pensioners at an estimated annual cost of £100 million ($133.4 million), which researchers said would be substantially lower than the projected long-term increase in Housing Benefit spending as more people rent in retirement.

Independent Age, which funded the research, said the findings highlighted growing pressure on older renters with modest private pension income. The charity called on the Government's Pensions Commission to consider the proposed changes and urged ministers to unfreeze Local Housing Allowance rates so support better reflected rising rental costs, saying the reforms would help ensure Housing Benefit continued to meet the needs of increasing numbers of pensioners expected to rely on rented accommodation.

Rising Number of Older Renters

With more retirees expected to rely on rented accommodation in the coming decades, campaigners argue that current rules risk leaving some pensioners worse off for saving small amounts towards retirement. The PPI said policymakers will need to reconsider how private pension income is treated to ensure the system does not discourage saving while failing to support those facing rising housing costs.

The Government's Pensions Commission will now face calls to examine whether changes to Housing Benefit rules are needed to better protect older renters and ensure support keeps pace with the changing realities of retirement in the UK.