As Britain grapples with austerity, baby boomers feel the heat
There is a growing consensus in Britain that it is prosperous pensioners' turn to feel a little pain.
Shirley Ramprasad did not expect to be vilified as a greedy scrounger in her retirement years. She worked “hard whether I wanted to or not” as an administrator for 44 years, paid taxes without complaint, and has always made regular donations to charities.Skip to next paragraph
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"But every time I open a paper, I seem to see my generation described as leeches," says the 64-year-old widow from south London. “It’s really so unfair.”
Hers is not an uncommon feeling. As Britain continues its drive to reduce one of Europe's biggest budgets deficits, most debate about government spending – whether it takes place in Parliament or the pub – soon turns to the older generation, who have so far been largely shielded from austerity.
And from books like government minister David Willett's feted "The Pinch: How the Baby Boomers Stole Their Children's Future – And Why They Should Give it Back" to headlines featuring "grabbing grannies," there is a growing consensus that it is prosperous pensioners' turn to feel a little pain.
Pensioners are recipients of more than half of Britain’s total benefits budget of £109 billion ($166 billion). Their pensions are protected by a so-called "triple lock," which means they are increased annually by price inflation, the increase in earnings, or 2.5 percent – whichever is highest.
British baby boomers – members of the generation born in the twenty or so years following World War II – also receive free bus passes and a winter fuel allowance of £200 ($305). Over the age of 75, pensioners get a free television license. None of these benefits is need-dependent.
At the same time, pensioners' children and grandchildren have it a lot tougher. Youth unemployment is over 20 percent. Child benefit, a social security payment to parents of children, has been stopped for higher-earning parents. University fees have skyrocketed, meaning most young people are leaving university with debt levels almost unheard of in their parents' and grandparents' generations.
But most significantly, a prolonged and extreme property boom, which has made fortunes for many members of the older generation, has made owning a home beyond the reach of many young people.
Research by the Institute of Fiscal Studies published last week found that the incomes of people in their sixties and seventies had continued to rise since the recession, while people in their twenties had suffered the largest fall in median income of any age group.
Calls for cuts
So it is not surprising that the elder generation has become something of a target.
“Fewer young people, who are worse off, appear to be increasingly funding more older, wealthier, sections of society, who have been consistently protected by government policy, irrespective of their wealth,” says Angus Hanton, an economist and co-founder of Intergenerational Foundation, a think tank.
The Bishop of London, the Rt. Rev. Richard Chartres, recently said that "the fortunate generation" – of which he is a member – had accounted for too much public spending, a situation that raised "severe questions of inter-generational equity."
Now political leaders, too, are echoing this view. But they have to be careful not to ostracize their largest voting bloc. Older Brits turn out to vote in much larger numbers than younger people. Their numbers are also growing as people live longer.
This in turn means that more money must be found to pay for their old age, both in pensions and healthcare. Last week, Chancellor of the Exchequer George Osborne made headlines when he suggested that his party would review universal pensioner benefits, such as the winter fuel allowance, at the next election. The opposition Labour Party has already said it will end the fuel payments to the wealthiest pensioners.
But Tim Morgan, head of global research at brokerage Tullet Prebon, points out that such cuts need to be put in context. Last year, these universal benefits cost $4.6 billion out of a total benefits cost of $166 billion.
“So abolishing these universal benefits in their entirety would court great unpopularity for a pretty modest financial saving,” he says. “Limiting them on the basis of income would impose administrative costs which could eliminate most of any savings which might be achieved.”
An end to the 'triple lock'?
That leaves the state pension – payments to retirees – on the chopping block. The current coalition government promised to keep the "triple lock" growth rates in place for the current Parliament, but there is no guarantee they will not cut it after the general election of 2015.
Nick Pearce, director of the Institute for Public Policy Research (IPPR), a think tank, says he does not think the triple lock will be withdrawn any time soon. “It is much more likely that the retirement age will rise further and/or faster,” he says.
Osborne has already said he will raise Britons’ retirement age to 66 in 2020 and to 67 by 2026-28. A further rise to 68 is expected with about 30 years.
Many economists believe, however, that this will not suffice. This week, Policy Exchange, an influential think tank, said that future British governments would have to find as much as £40 billion ($61 billion) of additional savings by cutting vital public services if state-pension spending was not capped.
A 33-year-old primary school teacher in central London says she for one believes the triple lock on pensions should remain in place to protect less fortunate pensioners from poverty.
She doesn’t expect her own financial situation to improve any time soon – she heard the chancellor announce last week that he would try to stop automatic pay rises for teachers, and she is still paying off her student debt. She meanwhile is considering whether she should hand in her notice at work – hence her request for anonymity – because she cannot afford to buy a flat anywhere nearby.
“At 33, I’m one of the oldest teachers in my school,” she adds, “because the minute anyone wants to buy a home they have to move out of the capital.”