Baby Boomer’s v Generation X and the Millennials

Baby Boomer’s v Generation X and the Millennials

There is no doubt that the baby boomer generation has have benefited from tax breaks and other state support, throughout most of their lives. Now that they are retired, or retiring, the state help that they received is by and large, unavailable to younger people.

A baby boomer is someone born between 1947 and 1961, so even the youngest are now over 60. Research by the International Longevity Centre suggests that in the UK, wealth is at its peak among those individuals aged between 55 & 65, with those aged 65 to 75 being the second wealthiest group in the population.

However, after the age of 75, median wealth drops significantly, and there are as many as one in six older people living in poverty. There are also those who are asset-rich but cash poor, who want to hang on to their assets to pay for care-home fees.

So, why is this generation so wealthy?

Boomers benefited significantly from the expanding economy in the 1960s to 1990s. Those who went to university emerged pretty much debt-free, with zero tuition fees and with the majority receiving government grants to cover their living costs. Also, until 2000, individuals borrowing to buy their own home enjoyed mortgage interest relief at source (MIRAS), which applied to interest on loans of up to £30,000 per person.

As a result, in comparison to younger generations, the boomers generally have more assets, own their own homes, have no student loans, have built up investments while stock markets have risen and enjoy better pensions, (final salary/ index-linked pensions). Overall, they have less debt and more disposal income, with no mortgage repayments or childcare costs.

Other boomer advantages

The older generation also enjoys several other advantages as they reach state retirement age:

• No national insurance on pensions or earnings
• State pension is increased each year by the higher of earnings, inflation and 2.5% (the triple lock)
• Free bus travel in most regions
• Winter fuel allowance

In contrast, younger generations are burdened with much higher housing costs, childcare costs that can be as much as one parent’s wages, student-loan repayments, and the high-income child benefit charge.

What is the solution to the financial generation gap?

There are two sets of competing problems; firstly, the burdens on the younger generation and the minority of retired people who are seriously struggling with living costs. However, taking advantages away from the old will not help younger people.

As argued in my Blog two weeks ago, ‘Fantasy Budget’, National Insurance contributions should be paid on all earnings, including pensions, irrespective of the age of the taxpayer. This could be phased in over a number of years, perhaps with my more radical solution of combing NIC with income tax.

This would provide much needed additional income to support younger families as well as the many older individuals, who are struggling at or below the poverty line.

Help for younger families

MP’s often say they want to support younger families, but in my experience, they rarely take any meaningful action towards it. So, I have a few suggestions that can be implemented immediately:

• Write off student loans for those in jobs, where there is a shortage, such as social workers, nurses, medics, teachers and pretty much anyone in the care sector
• Scrap the high-income child benefit charge, which now even applies to some people paying basic rate tax and claws back child benefit
• Provide more government-subsidised childcare and make it easier for employers to provide tax-free childcare by scrapping any such help being a taxable benefit

Help for retirees on low income

There are a significant number of older people who do not have savings or a private pension and have to pay for food, heating and all other costs, out of a meagre state pension of less than £10,000 per year. So, what can we do:

• Allow the full personal allowance to be transferred between a couple, so where one person has little or no income (usually the woman) both of the couple’s personal allowances can be fully used.
• Expand the married couples’ allowance, which is currently restricted to couples where at least one person was born before 6 April 1935.
• Require the DWP to pay the right amounts of state pension to women who have been underpaid for years, without further delay.

There are a number of other state benefits designed for the older generation, which have a poor take up as many people don’t realise that they are eligible. These include pension credit, attendance allowance and the carer’s allowance. Most of these benefits are tax free but means tested.

Tax Accountant’s view

There is no doubt that both the care system and benefits are not fit for purpose, with both of the major political parties recognising this. Unfortunately, apart a bit of tinkering around the fringes, they have done precious little about it.

My suggestion is for both Labour and the Conservatives to collaborate on designing a system that helps those individuals in society that are struggling, both young and old. Regrettably, this is unlikely anytime soon.