The intergenerational fairness debate continues

The House of Lords Committee on Intergenerational Fairness and Provision has called on the government to take steps to make society fairer by supporting younger people, particularly in the employment market and the provision of housing.

A Change of Perspective Needed

Peers believe that ‘outdated’ age-specific benefits for older people should be replaced with support for the young to ‘deliver a fairer society’.

The Committee – made up of Labour, Conservative, Liberal Democrat and crossbench peers – issued a raft of recommendations, both to ‘retain the supportive relationship between generations’ and to plan for the ‘100-year life’ that younger people can expect to become the norm.

The Committee said intergenerational unfairness was being ‘exacerbated’ by an ageing population, the 2008 global financial crisis and successive government policies that have failed to consider the issues. According to its report 1, many pensioner households are now better off than their working-age counterparts, both in terms of the income they have after deducting housing costs and overall household wealth.

Commenting on the proposals put forward by the Committee, its Chairman, Lord True said that the connections between the generations could be undermined if the government didn’t get to grips with the key issues of housing, secure employment and fairness in tax and benefits.

Tax and Spending

The Committee’s recommendations covered a range of topics, including tax and spending. Some of the proposals include:

  • Remove the State Pension triple lock, and instead uprate the State Pension in line with average earnings
  • Free bus passes and the Winter Fuel Payment should only be made available five years after the recipient becomes eligible for the State Pension
  • Better-off workers over the State Pension age should pay National Insurance Contributions while they work.

1Select Committee on Intergenerational Fairness & Provision, April 2019

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New pensioners aren’t splashing the cash

When the new pension rules came into force in April 2015, fears were expressed that pensioners might raid their pension pots to go on a spending spree. The former Pensions Minister Steve Webb, famously remarked at the time that pensioners could choose to spend their savings on buying a Lamborghini if they wished. However, the evidence suggests that this hasn’t happened.

Whilst the total value of pension withdrawals made since April 2015 is over £25bn, the average withdrawal made between July and September 2018 was £7,597, the lowest level recorded by HMRC since their records began2 in Q2 2015.

Volatility playing a part

The lower level of withdrawals could be a sign that pensioners were reacting to market volatility and concerned to preserve their wealth. Managing withdrawals from pension funds can be a challenge for those unfamiliar with the stock market; that’s why taking advice is so worthwhile. Ensuring their pension funds last as long as they do themselves is a concern often expressed by those approaching retirement; we can help ensure retirees make the right choices at the right time.

2.HMRC, April 2019 Your Window on Wealth