Wealthy pensioners

Unfairness is growing
November 14, 2012

Recent research suggesting that around a million people over the age of 65 live in households with wealth of more than £1m again raises the question of whether Britain has a problem of intergenerational inequity. Do older generations have, and are they eating, too much of the national cake?

As a group they are better off, relative to those of working age, than ever before. Pensioner incomes are at a record high compared with average incomes and continue to rise. This reflects three major policy decisions.

First, the last Labour government spent billions increasing means-tested benefits for the poorest pensioners. Pensioner poverty has fallen to historically low levels as a result. In contrast with its policy on poorer working age families, the current government is not clawing back any of that additional spending.

Second, the universal and contributory elements of state provision are better for this generation of retirees than for earlier, and potentially for later, ones. Some are benefiting from the state additional pension, which will fall for those retiring in the future. All have benefited from winter fuel payments and other universal bonuses, and the basic pension is subject to the “triple lock,” rising by whichever is highest of the consumer price index, average earnings and 2.5 per cent.

Third, and most importantly, those currently in their 60s are probably enjoying the high tide of occupational pension provision. Most have some income—sometimes substantial amounts—from a final salary scheme. Future generations, other than those employed in the public sector, will not enjoy such good fortune.

But does any of this matter? Indeed, is it not a cause for celebration that within two generations we have moved from a situation close to mass poverty among British pensioners to one in which an increasing number are very comfortable?

It should be no surprise that those in their 60s are, on average, wealthier than any other group. They have had a lifetime to build up assets, and only after retirement will they start to run them down. Some concerns about intergenerational equity seem misplaced. After all, these assets will largely be passed down to the next generation. But there are reasons for concern.

Even though the current stock of housing will eventually move down the generations, many younger people will be locked out of the property market for longer than before; a reflection of grossly inadequate rates of house building.

In addition, the assets that this generation holds are not shared equally. The benefits to subsequent generations from having had wealthy parents or grandparents will be large, as will the costs of being born into a less wealthy family. The concentration of wealth in this generation is likely to lead to inequality in the next, and lower social mobility. There is further unfairness in current generations of workers supporting generous occupational and state provision for retirees when they cannot expect similar support.

Finally, there is a danger of expectations becoming misaligned with reality. The fact is that most people under the age of 50 will have to work through a large part of their 60s if their own pensions are going to be adequate and if the whole pension system is going to be sustainable. With the majority of recent generations retiring well before 65 we need to learn fast that their experience should not be a guide to our own expectations.