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ThePinchHow the baby boomers
took their children’s future – and why they should
give it back
DavidWilletts
KeeleUniversityDecember2015
@resfoundation
1
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TheUKisexpectedtobecomethelargestcountryintheEUbythemiddleofthiscentury
2 Source: UN, World Population Prospects
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Overthelastcentury,Britainhasgonethroughbabyboomandbust
3
DefinitionsofgenerationsvaryButtheperiodofbirths/yeartopping800,000(oreven1m)post-warwasclearlyexceptional
Source: RF analysis of ONS, National Records of Scotland, NISRA and University of Portsmouth
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Agreaterdemographicstrainissettoemerge,thoughtheUKremainsbetterplacedthanothers
4 Source: ONS and populationpyramid.net
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Theratioofolderpeopletothoseof‘primeage’settorisebutlessdramaticallythanelsewhere
5 Source: UN, World Population Prospects
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THEWELFARESTATE
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Wepayinandtakeoutatdifferentpartsofourlives
7
…
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Butbabyboomscanbreakthecontract
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• “Givinggoodstoanolderpersonisfigurativelygivinggoodstoyourselfwhenold.”(PaulSamuelson,1958)
• Balancingthebudgetacrosstheeconomiccyclewithstablepublicspendingcommitmentsbenefitsthebabyboom
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Asaresult,somegenerationshavereceivedmuchmorefromthewelfarestatethantheyputin
9
…
Source: J Hills, ‘Distribution and redistribution’, Inequality and the state, 2004.
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Thismaybereflectedinthegenerationaldivideinviewsonthewelfarestate
10
Oldergenerations,includingthebabyboomers,haveamuchmorepositiveoutlookonthecreationofthewelfarestatethanGenerationsXandY
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Andtheburdenonyoungergenerationsappearstohavegrownovertime
Source: T Papworth and A Corlett, ‘Intergenerational fairness: What is it? Does it matter?’ 2014.
Thedifferencebetweenthe1997and2008calculationsmaysuggestthatchangesovertheinterveningdecadehaveturnedeventhosewhowerepreviouslyexpectedtobeinsurplusintoaburdenonfuturegenerations
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Pensionerbenefitshavebeenprotected(andthensome)whileothers’benefitshavebeencut
12
Thepensiontriplelockalreadycosts£6bnpamorethanastraightearningslink
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THELABOURMARKET
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Employmentofolderworkershasreachedarecordhighandofunder25sarecordlow
14
Muchofthefallfortheyoungisapositivetrend,witheducationcontinuingforlonger
Source: RF analysis of ONS
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Recentcohortsareearningsignificantlylessthantheymighthaveexpected
Successivecohortstendtoearnmorethan
theirpredecessors–butthathasn’t
appliedforthosecurrentlyintheir
20s
Membersofthe1988cohortareearningaround£50pwlessonaveragethan
thosewhoenteredthe
workplace10yearsearlier
Source: P. Gregg in Securing A Pay Rise
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AndtheDBpensionschemedeficitsofyesterday’sworkersareweighingonthewagesoftoday’s
16
Takingtheperiodsince1983,a23pptgaphasopenedup
betweenproductivityand
medianpay
Thedistributionofpayaccountsfor
around70%ofthis‘wedge’
Meanswage
disappointmentsince2002isonlyalittleoverhalfdue
toproductivitystagnation
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Only26percentoftheliabilitiesofdefinedbenefitrelatetocurrentlyemployedworkers
17 Source: PPF / The Pensions Regulator
WorkbyBrianBellshowsthatasignificantshareofthe‘non-wagecompensation’ofemployeesactuallyrelates
toemployerpensioncontributionsdesignedtoplugthegapinclosedDB
schemes
Whilemanyofthoseclassifiedasdeferredmaystillbeinemploymentinotherfirms,thepotentialburdenonwagesisnot
spreadevenlyacrossemployersandindustries
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WEALTH
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Whoownsour£9.4trillionofwealth?Disproportionatelythoseaged55-64
19
Includes:• Liquid
financialassets
• Owner-occupiedhousing
• Buytoletandphysicalassets
• Pensions
Source: RF analysis of Wealth and Assets Survey, 2010-12
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Youngerhouseholds’sliceofthewealthpiehasshrunksincethebeginningofthecrisis
20 Source: RF analysis of Wealth and Assets Survey, 2006-08 and 2010-12
Sincetherecession,householdsagedunder45nowholdlesswealththanthoseaged65-74,despitetherebeing2.5timesasmanyofthem
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Propertyandpensionwealthformthemajorityofolderhouseholds’wealth
21
Today’slessgenerouspensionschemesraisequestionsaroundwhetherthiswillcontinuetobethepatternwithyoungercohorts
Source: RF analysis of Wealth and Assets Survey, 2010-12
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Thoughoppositiontohouse-buildinghassoftenedinrecentyears
22 Source: British Social Attitudes Survey 2014
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Nonetheless,youngerpeoplearemorelikelytoreporthavingfinancialdifficulties
23 Source: Understanding Society
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Whydotheboomersownsomuch?
• Inflationcameattherighttimetowipeouttheirdebts
• Improvementsinlifeexpectancyattherighttimetoo
• Pensionregulationhashelpedpossessors
• Whogainedthemostfromthebankbailoutandwhopaysforit?
24
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Butagain,importanttorememberthatnotallolderpeoplearebetteroff
Thoughtheproportionofpensionersinpovertyhasfallen,16%findthemselvesinpovertyafterhousingcostsOne-in-seven65-74year-oldhouseholdshavelessthan£50kinwealth
25 Source: RF analysis of Households Below Average Income
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TheInter-generationalcontract–Whatgovernmentsdo,byEdmundBurke
“Societyisindeedacontract.Subordinatecontractsforobjectsofmereoccasionalinterestmaybedissolvedatpleasure–butthestateoughtnottobeconsideredasnothingbetterthanapartnershipagreementinatradeofpepperandcoffee...Itistobelookedonwithotherreverence;becauseitisnotapartnershipinthingssubservientonlytothegrossanimalexistenceofatemporaryandperishablenature.Itisapartnershipinallscience;apartnershipinallart;apartnershipineveryvirtue,andinallperfection.Astheendsofsuchapartnershipcannotbeobtainedinmanygenerations,itbecomesapartnershipnotonlybetweenthosewhoareliving,butbetweenthosewhoareliving,thosewhoaredead,andthosewhoaretobeborn.”
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DIVISIONS?
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Segregationofthegenerations?
• Whereyouwork:9%ofemployeesareaged16-21buttheyaremorethan25%ofworkforcein15%ofworkplaces
• Whereyoulive:Socialhousinghasuptosixtimestheaverageratioofchildrentoadults
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Segregationofthegenerations?
29
SocialIntegrationCommissionstatsshowthatyoungandoldpeoplearetheleastlikelytomixwithotheragegroups
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Thegrowinggapbetweenthegenerations
30 Source: Jill Dando Institute of Crime Science at University College London
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Thegrowinggapbetweenthegenerations
31 Source: Eurobarometer 269
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Thegrowinggapbetweenthegenerations
32 Source: Attitudes to pensions, 2006 survey DWP Research report no. 434
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Wearebetterparentsthanwearecitizens
• Imagineyouarerunningaforestrybusiness…Whydoyoulookafterit?o Profito Equityandamenityo Theonlyreasonwehaveitnowisbecausethosebeforeusmaintainedit
• Policiesforthelongtermarewhatmorethanhalfofvotersvalue
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ThePinchHow the baby boomers
took their children’s future – and why they should
give it back
DavidWilletts
KeeleUniversityDecember2015
@resfoundation
34