Industry view – Pension Insurance Corporation
Max Cawthorn is head of capital strategy at the Pension Insurance Corporation
A SOCIAL VALUE OPPORTUNITY
There are more than 11 million people of pensionable age in the UK, which is expected to grow by more than 4 million by 2045. 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 increas- ingly attractive market for institutional investors.
While the sector has recorded remarkable growth, untapped potential is increasing by the day as the population ages, but only 1% of residents over 65 live in dedicated retirement accommodation, compared to 6.5% in the US and 5.5% in Australia. By developing retirement communities in the UK to provide for 5% of people of pen- sionable age, the equivalent of £125bn in value could be unlocked. 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.
PIC has invested significantly in the UK living sector, including social housing, private rental and retirement communi- ties. The increasing demand for retire- ment living creates favourable market conditions – with long-term planning horizons and consistent and predictable sources of revenue. So, this sector fits per- fectly within PIC’s investment strategy.
Generation of social value
Investing in retirement living offers secure cashflows over decades because it also delivers material social value by addressing the UK’s housing crisis and expanding housing options for older indi- viduals. Increasing the number of retire- ment communities is the cornerstone to unlocking every stage of the housing mar- ket. As retirees downsize to retirement homes, larger family-sized homes become available for younger families. Yet today, as the tiny proportion of dedi- cated retirement homes in the UK sug- gests, the options for older people looking to move or downsize, without compro- mising on quality or comfort, are limited. Retirement communities provide a safe and supportive environment, countering risks of loneliness, isolation and abuse. Access to onsite medical facilities and wellness amenities reduces the burden on the NHS, with each person in a retire- ment home estimated to save the NHS and social services some £3,500 per year. Investing in retirement housing also con- tributes to economic development and stimulates local economies by creating jobs and generating tax revenue. Retire- ment living can breathe new life into communities that struggle economically.
Case study In June 2022, PIC demonstrated its com- mitment to retirement living by making an equity investment of up to £200m 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 around 2,000 older residents, incorporating lifestyle and wellness facili- ties to enhance their quality of life. This investment will generate predictable cashflows to back our pension payments, aligns with our purposeful investment strategy, and creates social value.
Conclusion Funding and building new retirement homes throughout the UK benefits older residents and renters by providing them with a viable choice of housing of suffi- cient quality, designed with their chang- ing needs in mind. It would support greater optionality and movement in the housing market by freeing up stock that may be more appropriate for families, 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.
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10 | portfolio institutional | July-August 2023 | Issue 125
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