1. www.cps.org.uk Who will care for Gen Y? The baby boomers’ legacy 20 November 2015 Michael Johnson Research Fellow, Centre for Policy Studies

2. 2 Introduction Quality of later life BBs1946 -1964 (aged 69-51)Doing great Gen X1965 – early 1980s (50-35)Reliant on inherited wealth Gen YEarly 1980s – early 2000s (34-15)< parents? Gen Y vs. BBs Early adulthood: higher take-home income But… Unaffordable housing, college debt, fragmented careers, stagnant earnings, thinner pensions (occupational & private), smaller State Pensions vs. prior earnings (and SPA in retreat)

3. Central projection for Public Sector Net Debt, PSND* 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 1970198019902000201020202030204020502060 Ratio excluding impact of ageing population (approx) 54% low, mid-2030’s 87% in 2064-65 * Fiscal Sustainability Report, June 2015 PSND 80.4% of GDP £1,484 billion £55,600 / household % of GDP ?

4. Public Sector Net Debt, % of GDP 0% 50% 100% 150% 200% 250% 1900 1920 1940196019802000 QE…..?

5. 5 With baby boom Without baby boom The Old-Age Dependency Ratio* * Ratio of 20–64 year olds to those aged 65 and over. Ref. Pensions: Challenges and Choices - The First Report of the Pensions Commission, 2004. Workers / pensioner 1941: 7.1 2051: 1.8

6. 6 Costs of an ageing population +Stagnant productivity growth + Negative real earnings growth + Rising interest rates (eventually) = Fiscal squeeze + Approaching saving tipping point = Diminishing supply of domestic capital Cost of capital to rise We need a savings culture The squeeze is on Impact on personal debt?

7. Savings, debt and demographics

8. 8 PM: "We are paying down Britain’s debts” * Cloudy communication * Conservative Party political broadcast, 24 Jan 2013 “The deficit”

9. 9 Which deficit, which accounts ? Non-cash Whole of Gov’t Accounts National Accounts

10. 10 Public service pensions: WGA, 2013-14

11. 11 Whole of Government Accounts (WGA)

12. Pensions The State Pension……..c £4,000 billion liability HMT:A benefit (i.e. “welfare”), not an obligation Steve Webb:It is yours by right, you have paid your NICs Triple lock?* Ancillary pensioner benefits? * Guarantees that the State Pension is increased each year by the higher of CPI inflation, average earnings or a minimum of 2.5%.

13. Tax receipts, reliefs & expenditures 2014-15

14. 14 1.Office for Inter-generational Responsibility (OIR) Produce Inter-generational Impact Assessments Scrutinise all tax reliefs and exemptions Five year sunset clause? Triennial Intergenerational Report? 2.Lobbyists OIR 3.Departmental budgets: set net of tax reliefs 4.PM’s responsibilities doctrine: add inter-generational Proposals to arrest inter-gen. injustice

15. 15 Debt and promise mountain, low growth risk Debt + unfunded promises < GDP growth rate Risk: quality of later life < (baby boomer) parents’ “The central projection in each of our reports over the past five years has pointed to an unsustainable fiscal position over the long term.” OBR Fiscal Sustainability Report, June 2015 Conclusion: Gen Y under threat

16. www.cps.org.uk Who will care for Gen Y? The baby boomers’ legacy 20 November 2015 Michael Johnson Research Fellow, Centre for Policy Studies

17. 17 We need higher economic growth….led by investment Low interest rates means low returns…..so people don’t invest Interest rates: the price for capital….low rates indicate excessive savings – Ageing populations postpone spending to enjoy retirement – They save more…..so interest rates fall How to break out? > Raise retirement age – More years earning…..then require less savings for retirement – Higher consumption….higher demand….higher investment But distribution of savings….is with the old……Gen Y has smaller savings Notes: hedging against the next recession