Money Observer: Pensions policy unfairly skewed towards baby boomers, says former minister

On 2 March 2016 the Work and Pensions Committee took evidence from two former ministers and experts in the ‘intergenerational fairness’ debate, David Willetts and Steve Webb.

The session was part of an inquiry that aims to discuss what the concept of ‘intergenerational fairness’ means in practice and how inequality between generations should be addressed, as well as considering the long-term outlook for pensions.

Willetts, who is the author of The Pinch: How the Baby Boomers Took Their Children’s Future – And Why They Should Give it Back, argued that policy has been skewed too far in favour of the ‘baby boomers’ generation. Those who were born in the 1950s now enjoy around 116 per cent of what they paid into their pensions, he said.


‘If you’re in your 50s, 60s or 70s, chances are you’ve got a funded pension, a house and you’ve paid off your mortgage,’ he added. ‘But those in their 20s and 30s are hard-pressed. They have no pension savings, comparatively low incomes and the only way to fund a house is by inheriting wealth.

Referring to the upcoming pension review announcements, Webb argued that pension Isas would be bad news for young people. ‘They would have to pay all the tax now, and then pay it all over again later’ if policies change in the interim, he warned.

Introducing a Pensions Isa would be a big call for George Osborne and ‘a radical change to the system’.

Further, Webb suggested that young people and the self-employed should be allowed to dip into their pension pot to finance their businesses and house deposits. If a person decides to take money out of their pension pot, the government’s contribution should remain ‘on account’.

Only if money is put back into the pot later on should they be given the government’s contribution as part of their pension. This would incentivise people to put money back into their pension pot, he said.

There has been no increase in employment among the young, said Willetts, but a surge in employment among those in their 60s. He pointed out that one in four older people’s bus passes is used to travel to work.

At the same time the ministers agreed that it is a good idea for older people to stay in work for longer. Further, employers should offer training and re-training for them, and society needs to start thinking of ‘second and third careers’.


The biggest issue that drives generational inequality, according to Willetts, is housing. Not enough new and affordable houses are being built. Willetts welcomed governmental initiatives that help young people with deposits and loans.

But while the time required to save for a deposit in 1983 was three years on average, it takes 24 years to save for the average deposit today. In London, people spend on average 60 per cent of their income on rent, making it even more difficult to save for a deposit.

Increasing housing prices widen the gap between generations, said Willetts. Equity release is still tiny, and older people don’t tend to downsize. Webb added that not enough houses are built for older people who do want to downsize.

Willetts pointed out that improved life expectancy also means that people live in their houses for longer. This takes 50,000 houses out of the market per year, which creates ‘blockage at the other end’. Jeremy Quin MP suggested that there should be tax incentives to encourage older people to downsize.

But John Glen MP said: ‘Isn’t the crude reality – the bottom line – that the propensity to vote among older people is what matters at the end of the day?’

At least attitudes are changing on the whole, according to Willetts. Parents and grandparents are beginning to worry about their children and grandchildren’s future, and intergenerational fairness is more of an issue than it was a decade ago.

This article was originally published in Money Observer on 3 March 2016:

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