As the dust settles on the General Election, one thing is certain: pensions have never had a higher profile in political debate. Both major parties made a play for the mantle of pensions champion. Take a step back and they reveal a tug of war between the young and old.
Until very recently, pensions were a second order political issue. Focus groups and opinion polls confirmed they mattered to voters – especially voters over the age of 50 – but not so much as the NHS, jobs, growth, the welfare bill, and political leadership.
It is no longer so simple.
The UK spends more on pensions, pensioner benefits, and pensions tax relief than on any other area of government spending except the NHS.
Two fundamental processes are driving the rising public profile of pensions. The first is the reality that the UK has an ageing population and the fiscal pressures this places on the public purse. The UK spends more on pensions, pensioner benefits, and pensions tax relief (around £150bn per year) than on any other area of government spending except the NHS.
Something has got to give on the pensions front. This is even more the case as immigration falls in the wake of Brexit. For the last decade, paying for the pensions of a rising number of elderly has been made easier by the influx of young workers from the EU.
The second trend is related to the first but distinct: the wide and increasing gap in ownership of wealth between the “haves” over the age of 45 and the younger “have nots”. The possession of final salary pensions and homes which have often dramatically risen in value has made the baby boomers in particular the lucky generation.
The financial crash in 2007 exacerbated the gap between the older and the younger in this respect. Since 2009, total UK wealth has increased by more than £3 trillion, but the vast majority of this new wealth has gone to the over 45s. Quantitative easing has driven up the value of their assets without generating levels of economic growth high enough to enable younger asset-less workers to build significant wealth.
Within these cohorts there are exceptions of course. But as a generalisation the increasing struggle of old vs young is a reality.
Thus the dramatic insertion into the Tory manifesto of its social care funding policy which promised that individual gains from house price inflation would be socialised to pay for a rising care bill. This was remarkable.
But no more remarkable than the u-turn which almost immediately followed in the wake of a backlash among the older, wealthier generations who quite liked the property price rise windfalls, thank you very much.
The same kind of to-and-fro is taking place in pensions policy. Politicians are desperately trying to balance the demands of pensioners who want the full value of their entitlements to be maintained, against the rising pressure from younger voters for wealth to be redistributed down the generations. The Conservatives promised to downgrade the triple lock to a double lock, but if the OBR forecasts about wage and inflation growth are right this would not save much in the foreseeable future.
The surge in support for Jeremy Corbyn’s Labour party in recent weeks is also testament to the push-pull pressures from young and old. Yet, in fact, Labour’s manifesto was defined by its commitment to maintaining existing levels of pensioner entitlements including the triple lock.
Thus both major parties are being pulled this way and that way by the politics of pensions and ageing. Huge sums of money are involved and so too are crucial voting blocs. No wonder pensions is now a front page election story rather a sidebar column in the middle pages.
This article was published in City A.M. on 9 June 2017.