In this thought-provoking exploration, we delve into the concept of generational luck and the unique advantages that the late baby boomers, like myself, may have enjoyed. From higher education to housing and pensions, it's time to examine the evidence and uncover the hidden implications.
Higher Education: A Tale of Two Eras
The student loan system in England has sparked debates about fairness. While younger graduates face a 9% tax on earnings, my generation received annual grants and free tuition. This shift has led to a perception of injustice, with stories like Natalie Whittaker's, whose debt has skyrocketed. However, the situation is more nuanced. The expansion of higher education opportunities has benefited many, with participation rates soaring from 3.4% in 1950 to 49% by 2022/23. The real victims might be those who never had the chance to consider a loan and pursue university education.
The student loan system, though seemingly unfair, was designed to accommodate this growth while maintaining fairness within generations. It's a personalized tax system, ensuring that those with higher incomes subsidize the less fortunate. In essence, the early university-goers, like myself, enjoyed a privileged position, as we were subsidized, while today's top students subsidize others.
Housing: London's Lucky Few
The housing market presents another intriguing aspect. Buying a flat in London in 1988, as I did, has proven to be an unearned advantage. House prices have soared, benefiting those who bought early. Lauren Finch's story, struggling to afford a home on a £24,000 salary, highlights the challenges faced by younger generations. Interest rates have played a role, with lower rates making borrowing more affordable but driving up house prices. The timing of my purchase, during the transition to lower interest rates, was fortunate.
London's resurgence as a global hub has further exacerbated the housing situation. The population growth outpaced the increase in housing stock, making it difficult to buy or rent. Those who bought in London, like me, reaped significant rewards. However, it's important to note that even among baby boomers, there is inequality, with London buyers benefiting more than those in other regions.
Pensions: A Generational Windfall
Pensions present a clear advantage for the baby boom generation. We enjoy more generous pensions, funded by today's working population, than our parents did. Pensioner incomes have doubled since 1995, and the state pension now provides a larger proportion of median earnings. The State Earnings Related Pension Scheme, a highly generous program, was available to some boomers but has since been scrapped.
The real luck lies in the defined benefit pension schemes that were offered during our working years. These schemes, now rare in the private sector, provided a fixed proportion of salary as a pension. In contrast, millennials and Gen Zers accumulate savings in defined contribution pensions, with employers contributing significantly less.
The Luck Factor: A Generation's Advantage
I believe I was particularly fortunate. I went to university without paying, bought a flat in London at the right time, and worked for an employer offering a generous defined benefit pension. However, it's crucial to distinguish between the luck of some within the late baby boom and the luck of the entire cohort. The late baby boom was a generation where luck could thrive.
The grand disappointment of recent decades might not be solely attributed to education, housing, or pensions. It could be the decline in per capita economic growth post-2007/08. The country's wealth hasn't grown as expected, leading to a shared sense of material deprivation. A 2% per capita growth rate, as seen in the 1980s and 90s, ensures each cohort is richer than the last. But with a 1% growth rate, this isn't guaranteed.
Even though baby boomers aren't the richest cohort, some have lived in a country on an upward trajectory. The desire for improvement might outweigh the appeal of a richer country in decline. To address intergenerational equity, we must reignite the economic growth engine.
