Analysis: An inquiry into intergenerational fairness, aiming to bring more clarity to the often heated debate about who gets what from the state and employers, has been welcomed by experts.
A previous study by the Tax Incentivised Savings Association highlighted the disparity between babyboomers’ and millennials’ pension prospects, suggesting that in 2035 people will for the first time be less well off in retirement than the previous generation.
The cross-party Work and Pensions Committee has now launched an inquiry into the impact that policies around welfare and housing in recent years have had on different generations and the options for reform.
The inquiry is likely to see emotions run high; some might accuse babyboomers of having made excessive use of the state and employers’ generosity while profiting from booming house prices; others might argue today’s young people enjoy privileges that the older generation were denied, such as access to free information, cheap travel and low food prices.
Malcolm McLean, senior consultant at Barnett Waddingham, said: “If you talk to today’s pensioners… they will say, ‘Hang on, we’ve lived through the war, we had it rough, we had to scrape and save throughout the years, it hasn’t been that easy’, and to some extent that’s true,” he said.
“It is also true to say that the government… seems to want to featherbed pensioners,” with increases to the state pension, bus passes, the winter fuel allowance and TV licences, he added.
Policies to help the working-age population
But merely scrapping these could not solve the problems younger people are faced with.
It’s the job of government to hand out benefits to those who need them… We come across people who get winter fuel allowance and spend it on claret
Angus Hanton, Intergenerational Foundation
“It only makes sense to deprive pensioners of these sorts of perks if that is then going to be used in some productive way to help the working-age population,” McLean said.
Others say the pendulum has swung too far towards older people. The Intergenerational Fairness Index, which measures the outlook for young people, has gone down 10 per cent since 2010.
Angus Hanton, co-founder of the Intergenerational Foundation, which created the index, said the welfare system “seems to be over-rewarding older generations and progressively taking away from younger generations”.
He said there should be a form of means testing, such as assessing the need for pensioner benefits based on council tax bandings, while people past state pension age who are still in work should continue to pay national insurance.
“It’s the job of government to hand out benefits to those who need them… We come across people who get winter fuel allowance and spend it on claret,” he said.
Young people have to finance their own pension through defined contribution arrangements, and pay for their parents’ unfunded or underfunded pension, Hanton argued.
“Auto-enrolment is clearly a good thing, young people are showing themselves to be very responsible and very few of them are opting out, but it does leave them paying for both pensions,” he said.
Points the inquiry will address
What has been the collective impact on different generations of policies in recent years, including welfare reform and deficit reduction with areas of protected spending?
To what extent is intergenerational fairness a welfare issue?
What effects are these changes projected to have over time? Are they sustainable? What have the long-term trends been?
How does the welfare system interact with other areas of public expenditure and income and wealth in the wider economy, including issues of health, education and housing?
Is the triple-lock necessary to prevent future increases in pensioner poverty?
What would be the effects of reforming the triple lock and how might the worst of these be mitigated?
How might other benefits such as winter fuel payments be reformed?
To what extent will existing policies encouraging work and savings ensure a more sustainable system?
What are the options for reform?
Make housing an ‘integral part’ of pensions
Carlton Hood, customer director at investment platform provider Old Mutual Wealth, said he welcomed the inquiry.
“In the space of pensions and savings we are changing systems radically, and there is a real need to think hard about how we make sure that the generation coming through has adequate provision,” he said.
Government policies such as new tax rules for pension death benefits and changes to inheritance tax are making it easier for younger people to receive money from the older generation, said Hood.
He also named auto-enrolment and the Financial Advice Market Review – which aims to make advice more accessible and affordable – as well as a potential switch to flat-rate pensions tax relief as further steps on the way to help those of working age.
However, Hood said housing should become more prominent in the pensions debate as many have to rely on assets outside of pensions during retirement. An equity-release-type product through which people could draw down housing equity could fill that gap, he said.
“As an industry we need to look at making people’s family home and housing a more integral part of retirement planning,” he added.
