ThePinchHow the baby boomers

took their children’s future – and why they should

give it back

DavidWilletts

KeeleUniversityDecember2015

@resfoundation

1

TheUKisexpectedtobecomethelargestcountryintheEUbythemiddleofthiscentury

2 Source: UN, World Population Prospects

Overthelastcentury,Britainhasgonethroughbabyboomandbust

3

DefinitionsofgenerationsvaryButtheperiodofbirths/yeartopping800,000(oreven1m)post-warwasclearlyexceptional

Source: RF analysis of ONS, National Records of Scotland, NISRA and University of Portsmouth

Agreaterdemographicstrainissettoemerge,thoughtheUKremainsbetterplacedthanothers

4 Source: ONS and populationpyramid.net

Theratioofolderpeopletothoseof‘primeage’settorisebutlessdramaticallythanelsewhere

5 Source: UN, World Population Prospects

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THEWELFARESTATE

Wepayinandtakeoutatdifferentpartsofourlives

7

…

Butbabyboomscanbreakthecontract

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•  “Givinggoodstoanolderpersonisfigurativelygivinggoodstoyourselfwhenold.”(PaulSamuelson,1958)

•  Balancingthebudgetacrosstheeconomiccyclewithstablepublicspendingcommitmentsbenefitsthebabyboom

Asaresult,somegenerationshavereceivedmuchmorefromthewelfarestatethantheyputin

9

…

Source: J Hills, ‘Distribution and redistribution’, Inequality and the state, 2004.

Thismaybereflectedinthegenerationaldivideinviewsonthewelfarestate

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Oldergenerations,includingthebabyboomers,haveamuchmorepositiveoutlookonthecreationofthewelfarestatethanGenerationsXandY

Andtheburdenonyoungergenerationsappearstohavegrownovertime

Source: T Papworth and A Corlett, ‘Intergenerational fairness: What is it? Does it matter?’ 2014.

Thedifferencebetweenthe1997and2008calculationsmaysuggestthatchangesovertheinterveningdecadehaveturnedeventhosewhowerepreviouslyexpectedtobeinsurplusintoaburdenonfuturegenerations

Pensionerbenefitshavebeenprotected(andthensome)whileothers’benefitshavebeencut

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Thepensiontriplelockalreadycosts£6bnpamorethanastraightearningslink

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THELABOURMARKET

Employmentofolderworkershasreachedarecordhighandofunder25sarecordlow

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Muchofthefallfortheyoungisapositivetrend,witheducationcontinuingforlonger

Source: RF analysis of ONS

Recentcohortsareearningsignificantlylessthantheymighthaveexpected

Successivecohortstendtoearnmorethan

theirpredecessors–butthathasn’t

appliedforthosecurrentlyintheir

20s

Membersofthe1988cohortareearningaround£50pwlessonaveragethan

thosewhoenteredthe

workplace10yearsearlier

Source: P. Gregg in Securing A Pay Rise

AndtheDBpensionschemedeficitsofyesterday’sworkersareweighingonthewagesoftoday’s

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Takingtheperiodsince1983,a23pptgaphasopenedup

betweenproductivityand

medianpay

Thedistributionofpayaccountsfor

around70%ofthis‘wedge’

Meanswage

disappointmentsince2002isonlyalittleoverhalfdue

toproductivitystagnation

Only26percentoftheliabilitiesofdefinedbenefitrelatetocurrentlyemployedworkers

17 Source: PPF / The Pensions Regulator

WorkbyBrianBellshowsthatasignificantshareofthe‘non-wagecompensation’ofemployeesactuallyrelates

toemployerpensioncontributionsdesignedtoplugthegapinclosedDB

schemes

Whilemanyofthoseclassifiedasdeferredmaystillbeinemploymentinotherfirms,thepotentialburdenonwagesisnot

spreadevenlyacrossemployersandindustries

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WEALTH

Whoownsour£9.4trillionofwealth?Disproportionatelythoseaged55-64

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Includes:•  Liquid

financialassets

•  Owner-occupiedhousing

•  Buytoletandphysicalassets

•  Pensions

Source: RF analysis of Wealth and Assets Survey, 2010-12

Youngerhouseholds’sliceofthewealthpiehasshrunksincethebeginningofthecrisis

20 Source: RF analysis of Wealth and Assets Survey, 2006-08 and 2010-12

Sincetherecession,householdsagedunder45nowholdlesswealththanthoseaged65-74,despitetherebeing2.5timesasmanyofthem

Propertyandpensionwealthformthemajorityofolderhouseholds’wealth

21

Today’slessgenerouspensionschemesraisequestionsaroundwhetherthiswillcontinuetobethepatternwithyoungercohorts

Source: RF analysis of Wealth and Assets Survey, 2010-12

Thoughoppositiontohouse-buildinghassoftenedinrecentyears

22 Source: British Social Attitudes Survey 2014

Nonetheless,youngerpeoplearemorelikelytoreporthavingfinancialdifficulties

23 Source: Understanding Society

Whydotheboomersownsomuch?

•  Inflationcameattherighttimetowipeouttheirdebts

•  Improvementsinlifeexpectancyattherighttimetoo

•  Pensionregulationhashelpedpossessors

•  Whogainedthemostfromthebankbailoutandwhopaysforit?

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Butagain,importanttorememberthatnotallolderpeoplearebetteroff

Thoughtheproportionofpensionersinpovertyhasfallen,16%findthemselvesinpovertyafterhousingcostsOne-in-seven65-74year-oldhouseholdshavelessthan£50kinwealth

25 Source: RF analysis of Households Below Average Income

TheInter-generationalcontract–Whatgovernmentsdo,byEdmundBurke

“Societyisindeedacontract.Subordinatecontractsforobjectsofmereoccasionalinterestmaybedissolvedatpleasure–butthestateoughtnottobeconsideredasnothingbetterthanapartnershipagreementinatradeofpepperandcoffee...Itistobelookedonwithotherreverence;becauseitisnotapartnershipinthingssubservientonlytothegrossanimalexistenceofatemporaryandperishablenature.Itisapartnershipinallscience;apartnershipinallart;apartnershipineveryvirtue,andinallperfection.Astheendsofsuchapartnershipcannotbeobtainedinmanygenerations,itbecomesapartnershipnotonlybetweenthosewhoareliving,butbetweenthosewhoareliving,thosewhoaredead,andthosewhoaretobeborn.”

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DIVISIONS?

Segregationofthegenerations?

•  Whereyouwork:9%ofemployeesareaged16-21buttheyaremorethan25%ofworkforcein15%ofworkplaces

•  Whereyoulive:Socialhousinghasuptosixtimestheaverageratioofchildrentoadults

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Segregationofthegenerations?

29

SocialIntegrationCommissionstatsshowthatyoungandoldpeoplearetheleastlikelytomixwithotheragegroups

Thegrowinggapbetweenthegenerations

30 Source: Jill Dando Institute of Crime Science at University College London

Thegrowinggapbetweenthegenerations

31 Source: Eurobarometer 269

Thegrowinggapbetweenthegenerations

32 Source: Attitudes to pensions, 2006 survey DWP Research report no. 434

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