Today’s column by Philip Stephens in the Financial Times (Tomorrow belongs to someone else) pinpoints a fascinating scenario that is dawning on policymakers and researchers: that the children of baby-boomers cannot expect a relative level of financial security as high as their parents.
This is important because what is under threat is an underlying assumption of society about what each generation passes on to the next, and about the entire nature of ‘progress’ in society. This needs some explanation. As technological change and globalisation continue to evolve, each successive cohort of the young have access to choices, labour-saving devices, luxury goods and holidays far beyond what their parents experienced. That is not in question.
However, stripping out inflation, will the children of the baby-boomers amass a pot of assets as large as their parents? House price inflation and defined-benefit pensions have combined to make the post-war cohort very well-off. Will their children achieve the same level of security? Probably not. The inflation that paid off the mortgages of the baby-boomers seems unlikely to return, now that independent central banks have taken to targeting inflation so determinedly. And the generous pension plans that increasingly seem like some strange historical aberration will be replaced by much meaner schemes for today’s young.
The question, which Stephens fails to touch on, is what will happen to that wealth accumulated by the baby-boomers? Will it be used to meet their long-term care costs? Will it be redistributed by a capital gains tax on homes? Or will it be left to pass down within families as gifts and inheritance, entrenching inequalities. These are the vital questions for Government and the financial industry, and they provide an urgent research agenda that the ILC-UK will pursue.