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Intergenerational shift as young people face future where they are less well off than their parents

about 11 hours ago

Chris Johns

Mostly because of the value of housing, the old are richer than the young.




My grandparents paid the same price for a house as the current generation will pay for the new iPhone X. My parents bought a car for a similar amount of money.

A lot of that has got to do with inflation of course, but that’s not the whole story. There is an intergenerational shift going on: younger people becoming worse off than their parents. Those clattering and scraping noises that we hear are the sounds of older people pulling up ladders behind them.

Ageing populations are common to most countries. The demographic “time-bomb” has already hit Japan, for example, where the population is now falling. In Ireland, that won’t happen for a while yet but the happy fact that we are living longer does have lots of implications. There are more and more elderly people and their relative political and financial clout is growing accordingly.

The “pensions crisis” is one problem. Lots of today’s pensioners (and those soon to be retired) benefit from pension schemes whose generosity – guaranteed payments for life – will never be repeated.

Younger people are, typically, now left to their own devices to sort out their financial needs in retirement. Enlightened employers do help but “longevity risk”, as it is horribly called, is now firmly with the individual. Upon retirement, today’s younger generation had better hope that their lives run out before their pension pot is empty.

It’s macabre: which dies first, you or your pension? That’s a big problem for an individual, and a potential tragedy if the sequencing doesn’t quite work out. It will also be a societal issue: poorer older people will turn to the taxpayer for help.

One of the great urban myths is that we are all entitled to a state pension because we “paid into” something. Well, we didn’t and we don’t.

Our taxes pay for today’s recipients of state and public sector pensions. The grand intergenerational bargain is between today’s workers and tomorrow’s taxpayers: it is expected that the employees of tomorrow will happily cough up enough to tax to fund the pension promises made today.

That bargain worked when those future workers steadily became better off than their predecessors. It was an implicit contract: I’ll pay your pension because you laid the foundations for me to be better off than you. That contract is now at risk of being broken.

Many older people are, relatively at least, sitting pretty. Their houses were bought decades ago, are often now mortgage free, often worth multiples of the original purchase price. It wasn’t a clever investment or canny piece of entrepreneurial risk-taking that generated this king’s ransom. It was mostly dumb luck.

Good for them. But that luck is now being concentrated ever more tightly. One of the many reasons why not enough homes are being built is because of restrictive planning laws and straight Nimbyism promoted and practised by the old. Mostly because of the value of housing, the old are richer than the young. Guess which group is most resistant to wealth taxes in general, property taxes in particular?

If I live as long as my parents, I will end up spending more years in retirement than I did working. That’s partly because I benefitted for many years of (UK) state funded university education. That’s all gone: it’s excruciating explaining to my own sons that, not only were there no fees, I also received a quite generous grant. I finished college with a £5 overdraft. Those of us who benefitted from these arrangements have made sure that they will not be given to anyone else.

Low economic growth hurts the young far more than any other age cohort. Thankfully, the fates have conspired to make Ireland a fast growing economy. Growth abroad is creating jobs, but only of the low paid variety.

I wonder whether the ongoing puzzle of slightly disappointing domestic tax revenues alongside rapid employment growth might not be explained by low paid jobs. Around the world, the people who seem to be happy with all of this are, typically, old.

If it’s to be an iPhone rather than a house, it’s a good job that many of the services that come with that device are now essentially free. Younger people couldn’t afford social media apps if they had to pay their full cost. Wealthy older people benefit from their shareholdings in tech companies (either directly or via those generous pension schemes).

Those companies often don’t employ that many people. Untaxed corporate profits are a gift to shareholders; meanwhile public infrastructure crumbles for lack of investment: everybody suffers, particularly the young because of reduced future growth caused by today’s chronic under investment.

Older people have the money and the votes. Tackling intergenerational inequality is politically toxic. Left wingers will end up tied in knots over all of this. The next time you hear someone say that taxes on the rich need to go up, realise that what they really mean is that taxes on older people need to go up. And, short of a revolution, that is never going to happen.