Household wealth in shift from younger households to newly retired, study shows


Private wealth showed a shift from younger households to the recently retired in the years following the financial crisis, thanks in part to more generous Government treatment of the elderly, a study has found.

Analysis by the Resolution Foundation think-tank found that the proportion of the UK's total private wealth held by households headed by someone aged under 45 fell sharply from 20% in the years immediately before the 2008 crash to 16% in 2010-12.

The share owned by households headed by someone aged 65-74 increased from 17% to 19%, even though there were twice as many households headed by people aged 16-44.

Recent retirees account for almost a fifth of the UK's total household wealth, despite making up just 14% of households, the Resolution Foundation found. A long-term shift in financial assets from young to old has been "accelerated" by the financial crash and recession, said the think-tank's executive chairman, former Conservative minister Lord (David) Willetts.

But not all older households were doing better than younger ones, with one in seven having wealth of less than £50,000, making them likely to face problems in retirement.

Lord Willetts called on the Government to take "a far deeper look at the inter-generational implications of its public spending priorities", warning that the transfer of wealth from younger families to older ones had "serious implications for social mobility" as working-age people are forced to rely on assistance from parents or grandparents to get on to the housing ladder.

"I do not believe that this shift is creating an inter-generational conflict," Lord Willetts is due to say in a lecture at Keele University. "What we see instead is a considerable transfer of wealth from recent retirees down to their children and grandchildren, for instance by helping them to get on the property ladder.

"But we cannot rely on families alone to offset inter-generational inequalities, particularly if the state transfers wealth in the opposite direction. Such a pattern has serious implications for social mobility.

"To ensure that younger households enjoy the same wealth in older age as recently retired households, we need to see a relentless focus on productivity to get wages growing at a healthier rate.

"There is also an urgent need for action to boost housing supply, and for government to take a far deeper look at the inter-generational implications of its public spending priorities."

The Resolution Foundation said the growth in the "stark" generational wealth divide was produced by the recently retired being "relatively protected in a downturn where house prices had a swift recovery, while real wages took six years to start increasing again". The over-60s were least affected by the UK's pay squeeze after 2008, the think-tank found.

The study looked at the total value of liquid financial assets, owner-occupied housing, buy to let and physical assets and pensions held by private households.

It found that the proportion of property wealth held by households aged 16-44 fell from 22% in 2006-08 to 17% in 2010-12, while the share held by the much smaller group of 65 to 74-year-olds increased from 17% to 20% over the same period, in part reflecting lower home ownership rates among younger people, said the think-tank.

Lord Willetts will say: "There has been a long-term shift in the share of household wealth across the UK, which has been accelerated by the recent financial crash and subsequent downturn. The wealth of recently retired households has now overtaken that of the one in three households headed by someone under 45 years of age.

"However the notion that all pensioners are doing well financially is false, with one in seven having less than £50,000 in wealth to draw upon throughout their retirement."

Responding to the report, the director of the Institute for Fiscal Studies, Paul Johnson, told BBC Radio 4's Today programme: "We certainly have a world in which the older groups are doing much better than the younger."

For the last 10 years, average incomes for pensioners have seen "much bigger increases" than for those in their 20s and 30s, overtaking non-pensioner incomes in 2011, said Mr Johnson.

And a "great big change" in home ownership has resulted in people in their 20s and 30s being half as likely to be owner-occupiers as was the case 20 years ago.

Earnings for workers in their 20s and 30s were "still very low compared to where you would have expected them to be 10 years ago", while the Government's "very curious" pension triple-lock - which guarantees the state pension will rise in line with earnings, prices or 2.5%, whichever is the higher - means "many billions of pounds" being transferred to the elderly, he said.

"We are seeing a big change in society," said Mr Johnson.

"There's certainly a situation in which the share of total government spending going on health and pensions is rising inexorably."

As a result of Government decisions, spending on health and pensions will be "quite a lot higher" in 2020 than 2010 as a share of national wealth, said Mr Johnson.

And  in the decades after 2020, Britain's ageing society is likely to increase demand for health and pension spending.

"The long-term problem is that even after we've gone through this period of really severe spending restraint on most things associated with non-pension spending ... we've got another several decades in which health and pension spending will continue to rise almost inevitably by a minimum of 3% of national income, or another  £50 billion over the next 30 years," said Mr Johnson.

"Then you have to either have even further cuts on non-pensioner spending, which is going to be extraordinarily hard after 2020, or you have to have a bigger state and more tax - I suspect that's the most likely outcome - or you are going to have to find ways of significantly reforming the health and pension systems."

Lord Willetts told Today: "This is a  country where wealth is increasingly concentrated in the hands of the babyboomers.

"You might expect that people aged 55 own more than people aged 25, but what the figures from the Resolution Foundation show is that this trend is being exacerbated, it's getting more and more noticeable.

"We need mechanisms to spread wealth across all the different age groups in society. If we don't we will not be a country of opportunity."

Lord Willetts said the pensions triple-lock "is certainly something that has to be looked at".

He said: "It is an extraordinary formula, because it means that almost regardless of the state of the economy, the income of pensioners from the state just keeps rising."