There are more than 11 million people of pensionable age in the UK, a number which is expected to grow by more than 4 million by 20451. Ensuring the provision of safe, comfortable retirement accommodation for them is one of the big challenges – and opportunities – facing policymakers, planners, developers and the investment community.
This demographic shift offers a growing landscape for investment in retirement living, which is an increasingly attractive market for institutional investors.
While the sector has recorded remarkable growth in recent years, untapped potential is increasing by the day as the population ages. The UK lags behind other markets: only 1% of UK residents over 65 live in dedicated retirement accommodation, compared to 6.5% in the US and 5.5% in Australia. By developing the number of retirement communities in the UK to provide for 5% of people of pensionable age, the equivalent of £125bn in value could be unlocked.2
However, there are significant barriers to investment in the sector, including a lack of provision for older people’s housing in the local and national planning frameworks. This is being addressed in part by the Older People’s Housing Taskforce which is seeking to tackle the supply-side issues in the space.
As an investor in this rapidly growing alternative residential sector, Pension Insurance Corporation (PIC) a specialist insurer of defined benefit pension schemes, is at the forefront of embracing new ideas and re-imagining real estate investment in order to produce the cashflows to pay the pensions of our policyholders over the coming decades.
PIC has invested significantly in the UK living sector, including social housing, private rental and retirement communities. The increasing demand for retirement living creates favourable market conditions – with long-term planning horizons and consistent and predictable sources of revenue. So, this sector fits perfectly within PIC’s purposeful investment strategy.
Generation of social value
But investing in retirement living only offers secure cashflows over decades because it also delivers material social value, because it addresses the UK’s housing crisis, supporting the levelling up agenda, and expanding housing options for older individuals across the country.
Increasing the number of retirement communities is the cornerstone to unlocking every stage of the housing market. As retirees downsize to retirement homes, larger family-sized homes become available for younger families, addressing the housing crisis and fostering a more balanced housing landscape.
Yet today, as the tiny proportion of dedicated retirement homes in the UK suggests, the options for older people looking to move or downsize, without compromising on quality or comfort, are limited. Most new builds are developed with younger families or first-time buyers in mind, but dedicated retirement homes can be built with mixed-use amenities that support the lifestyles and wellbeing of older residents.
Retirement communities provide a safe and supportive environment, countering risks of loneliness, isolation and abuse. Access to onsite medical facilities and wellness amenities further promotes a healthy lifestyle for older residents. The provision of such facilities also reduces the burden on the NHS, with each person in a retirement home estimated to save the NHS and social services approximately £3,500 per year.3
Investing in retirement housing also contributes to economic development and stimulates local economies by creating job opportunities and generating tax revenue. The presence of retirement living can breathe new life into communities that struggle economically, providing a boost to local businesses and services.
In June 2022, PIC demonstrated its commitment to retirement living by making a significant investment of up to £200m in equity to fund the development and operation of several retirement communities across the country. Through the senior living investment partners’ joint venture with Octopus Real Estate, PIC aims to provide homes for approximately 2,000 older residents, incorporating lifestyle and wellness facilities to enhance their overall quality of life.
This strategic investment by PIC will generate predictable cashflows to back our future pension payments, aligns with our purposeful investment strategy, and creates social value.
Funding and building new retirement homes throughout the UK benefits older residents and renters by providing them with a viable choice of housing of sufficient quality, designed with their changing needs in mind. It would support greater optionality and movement in the housing market by freeing up housing stock that may be more appropriate for families to live in, but which would otherwise continue to be occupied by older couples or individuals.
With innovative financing solutions, PIC takes a leading role in embracing new ideas and re-envisioning real estate investment within the retirement living space, providing greater choice, quality and security of housing for older people. Growth in supply is dependent upon identification of the need for purpose built accommodation at a local and national level, and a supportive planning regime that helps to unlock sites and increase capital allocation.
Max Cawthorn is head of capital strategy at the Pension Insurance Corporation