Born in 1962, I find myself reflecting on the idea that my generation, the late baby boomers, might be the luckiest in history. The claim that we have done better than those who followed us is intriguing, and it got me thinking about the fairness between generations. As I explore this topic, I can't help but feel that the baby boomers were indeed fortunate, but not necessarily because of the systems in place. Instead, it's the timing and the unique circumstances that played a significant role in our luck. Let's delve into three key areas: higher education, pensions, and housing.
The Student Loan Conundrum
The English student loan system is a complex issue. While younger graduates face substantial debt, it's essential to recognize that the system has evolved over time. When I attended university, the government provided annual maintenance grants and covered tuition costs. Today, the system is designed to support a growing number of graduates while also ensuring fairness for those who didn't have the opportunity to attend university. The loan system aims to promote intergenerational equity rather than fairness across generations. However, the fact that it generates profits from better-off graduates to subsidize others is a point of contention. Personally, I think the system is a necessary evil, but it's not without its flaws. The real issue lies in the fact that many graduates will never earn enough to repay their loans in full, and the system is designed to cover these losses from the profits made from higher-income graduates.
Lucky London Buyers
Housing is another area where the baby boomers seem to have had an unearned advantage. Buying a flat in London in 1988, I upgraded to a bigger flat that soared in value over two decades. The story of house prices in England is one of relative gains for those who bought before the mid-90s. However, for those who came into house-buying age after 2015, the odds were stacked against them. The timing of my purchase was propitious, and I was fortunate to benefit from the transition from high to low-interest rates. But the reality is that London and its catchment area have enjoyed bigger gains than elsewhere, leaving many home-buyers in the rest of England at a disadvantage. The population growth in London, coupled with a limited supply of homes, has made it a challenging market for first-time buyers.
Gold-Plated Pensions
Pensions are where the baby boomers have truly looked after themselves. We benefited from defined benefit pension schemes, where employers contributed a substantial portion of our salaries to our pensions. This ensured a decent pension at a fixed proportion of our salary. However, for millennials and Gen Z employees, the situation is quite different. They accumulate savings in personal pension pots, which may or may not yield favorable returns. The striking difference lies in the contributions made by employers. For defined benefit pensions, private sector employers typically contribute 15-20% of salary, while for defined contribution pensions, the contribution is significantly lower at 3% of salary. This disparity highlights the challenges faced by younger generations in securing a comfortable retirement.
The Grand Disappointment
While the baby boomers may have been fortunate in certain aspects, the grand disappointment of the last two decades lies in the decline in per capita economic growth. The country is not as rich as it would like to be, with wages not growing as fast as expected and higher taxes to pay for public services. The lack of economic growth has contributed to a shared sense of material deprivation. Broadly speaking, if the economy grows at a per capita rate of 2% a year, average incomes grow by about a third every 15 years. However, when per capita incomes grow at an average of 1% a year, the growth is significantly slower, leading to a lack of intergenerational wealth transfer.
In conclusion, while the baby boomers may not be the richest cohort, some of us have been blessed to live and work in a country that seemed to be on a growth trajectory. It's a delicate balance between a poor country with improving prospects and a richer one where everything seems to be in decline. To address intergenerational equity, we must focus on restarting the growth engine that has been spluttering. The challenges faced by younger generations are real, but so are the opportunities for those who came before them. It's a complex issue, and one that requires careful consideration and action.
