From Ros Altmann:economist and pensions,
    investment and retirement policy expert

  • pensionsandsavings.com

    Why pit pensioners and youngsters against each other?

    Why pit pensioners and youngsters against each other?

    8 January 2014

    Lost Generation fears are real but premature

    Baby boomers also went through tough times but went on to thrive

    We need to be very careful, coming out of a few years of recession and economic turnmoil, not to become too negative when discussing the plight of younger people today.  Of course, the level of unemployment among younger people is a cause of great concern, but this is not necessarily a ‘lost generation’, as is so often claimed.

    Unemployment has been high among young people many times in the post-war period and, indeed, the very baby boomers who are said to have been so lucky all their lives and are envied now for having amassed some wealth to sustain themselves through retirement, also suffered periods of recession and dreadful unemployment during the 1970s, the 1980s and 1990s, yet went on to achieve their coveted status.

    The statistics that are quoted, which indicate youth unemployment is at its worst levels ‘ever’ need to be considered in perspective.  The Labour Force Survey only started collecting continuous data in 1992, while from the early 1990s, until the 2008 crisis, the UK experienced its longest ever period of uninterrupted economic growth.  Therefore, the figures do not stretch back to the earlier recessions, which might help explain why today’s younger generations seem unaware of the difficulties faced by current older generations in their youth.

    The recent trends are far more promising than is generally perceived – that is not to be complacent, but rather to offer more hope for the future.  In fact, unemployment among young people in the 18-24 age range is starting to fall and employment numbers are rising.  This suggests that, as the economy continues to recover, the unemployment issue should recede. Among graduates now, the unemployment rate six months after leaving university is 9%.  Of course that itself is not satisfactory, but it is a great deal lower than some of the scaremongering headlines have suggested.  Again, today’s older generations went through times like these and then benefited when the economy recovered.

    Youth unemployment is falling and employment is rising since 2011

    Latest ONS figs:                     Aug-Oct 2011                         Aug-Oct 2013        trend

    18-24 yr olds unemployed   815,000                                   758,000                  down

    18-24 yr olds employed        3.304m                                    3.319m                    up

    16-17 yr olds unemployed   211,000                                   183,000                    down

    16-17 yr olds employed        330,000                                   331,000                   up

    Young people in their 20s today feel as if they are worse off than their parents were at their age is partly true, but is this a reason for despair?  I think not.

    Firstly, previous generations left school and started working at much younger ages than is now the norm.  Most baby boomers left school at age 15 or 16 and had already been working for many years by the time they were in their 20s.  Nowadays, young people start working and earning later, which means they will have had less time to build up a career.

    Concerns are also often expressed about the inability of younger people to afford to buy a home.  Again, these concerns are partly valid but are not a reason for despair in the long-run, albeit a shorter term concern that is partly caused by policies designed to overcome the crisis.  House prices have increased too much and more housebuilding is urgently required. to increase housing supply.  The rise in house prices – largely encouraged by official policies such as Funding for Lending, Quantitative Easing and Help to Buy – has had a serious impact on the cost of renting as well, which again causes problems for younger generations.  A fall in house prices would be better for many but seems politically unacceptable.  The housing market is certainly a problem for younger people, but those that are able to buy are benefitting from record low mortgage rates, which certainly were not available to the baby boomers.  In the 1980s mortgage rates were well over 10% and reached 15% or more.

    The average age at which people start to buy a home has also been increasing sharply in recent years, but that trend pre-dates the 2008 crisis.  As people have been marrying or having children later in life, the age at which they buy a home has risen.  Therefore, younger people should not panic if they cannot afford to buy a house in their twenties.

    First-time buyers

                                                                                         1984        1994        2004

    Average purchase price, £                                   20,238     42,500     117,000

    Average advance, £                                              18,616     40,109     101,186

    Average income, £                                                9,028       16,120     29,270

    Average interest rate, %                                        11.88          6.25         4.99

    Average loan to value ratio, %                             94              95             87

    Average income multiple                                      1.99           2.34          3.03

    Initial interest payments as % of income           16.80         11.95       15.0

    Average age of first time buyer                               31               32            34


    Source: Survey of Mortgage Lenders

    Note: Incomes reflect those supporting the mortgage in each household

    Finally, on the issue of taxes, today’s older generations paid much higher rates of tax when they were young than is the case now.  Basic rate taxes were far higher, at least 30%, often 50%, 60% and even more, while the income tax threshold was much lower than now.  By the time they reached their twenties, today’s baby boomers had already paid far more tax than current twenty-somethings.  Much of the progress that has been made in working practices, health and safety and mechanical advances are due to the efforts of older generations.   Most pensioners are not on high incomes, with only about 2% of pensioners paying higher rate tax.  Only the top 20% of pensioner couples would be considered to have high incomes in retirement and much of their income is from earnings, rather than pensions.

    In summary, it is destructive for inter-generational envy or strife to be blighting society as seems too often to happen.  Younger people should not despair, they have opportunities in future to shape their own success, without the need to take money from pensioners or older people.  It will take time and hard work, but it has been done before and can be done again.  During tough times, it is often hard to imagine the brighter future, but it will come.  Let us all stay together and focus on building a cohesive society, rather than pitting old against young in a battle than nobody can win.

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