Tuesday, December 17, 2013

Are we better off than our mums and dads?

An in-depth survey of people born between the Battle of Britain in 1940 and the arrival of Margaret Thatcher in Downing Street in 1979 found that a decade in which real incomes have stagnated – coupled with changes to pensions and high house prices – has made life tougher for people currently in their 30s, 40s and early 50s than those born earlier. Born after 1960? You're probably poorer than your parents.

Those born in the 60s and 70s are less likely to own a home. Individuals born in the 60s and 70s having the same take-home pay as workers born a decade earlier. The children of the 60s and 70s had higher incomes during early adulthood than their predecessors but spent the extra. Compared with those born in the 40s and 50s, they are likely to have smaller private pension pots and will find that the state pension replaces a smaller slice of their earnings prior to retirement.

The IFS said: "The main conclusion is that individuals born in the 60s and 70s are likely to be reliant on inherited wealth if they are to be any better off in retirement than their predecessors. Many more people in younger cohorts expect to inherit wealth; but expected inheritances are distributed unequally and are higher for those who are already wealthier. The results suggest that the rapid improvement in economic outcomes across birth cohorts that we have seen in recent decades may be coming to a halt..But the prevalence and value of expected future inheritances are distributed unequally, with households that are already relatively wealthy far more likely to benefit."

Only 28% of individuals born in the early 40s could expect an inheritance, but that rose to 70% for people born in the 70s. The study found that of those born in 1972-78, 78% of the wealthiest third and 45% of the poorest third expected a future inheritance, while 35% of the wealthiest third and 12% of the poorest third expected a future inheritance worth at least £100,000. "Expected future inheritances also tend to be concentrated within the same households: individuals expecting inheritances are far more likely to have partners who also expect them.

After strong growth in the 80s and 90s, real incomes are no higher now than they were a decade ago and were growing only weakly even before the financial crash. Over the same period, companies have made a rapid switch from final salary pension schemes to less generous defined contribution schemes in which younger workers have been accumulating less private pension wealth.

Angus Hanton of the Intergenerational Foundation said: "This report shows rapidly growing intergenerational imbalances where younger generations face soaring costs of housing and education while receiving lower earnings and pensions, contrasting with the relative prosperity of older generations. Policymakers should not equate old age with need. They are protecting older, wealthier generations while stripping benefits from families and young people."

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