The row brewing over the state pension triple lock plays into a wider debate about incomes and wealth in old age and how, as a society, we adapt to the escalating costs of improved life expectancy, increasing care costs and, crucially, property prices.
It is becoming clear that the answer for many people is to take the Italian approach. In addition to eating pizza and pasta, they do everything to avoid paying higher taxes and hoard whatever assets they have accumulated.
Protecting the family’s finances becomes a priority as the state vanishes from the scene. And a family is no longer the traditional British nuclear family, but one that resembles the Italian extended family, where grandparents and parents feel obliged to provide more than just a good start in life for the youngest members. They must also dig deep to provide financial support, possibly for as long as they are alive.
This trend lies behind the Tory promise to raise the inheritance tax threshold for couples to £1m by 2020. It can also be seen when wealthy pensioners argue that the government should maintain the state pension as a universal benefit and even continue paying the winter fuel allowance.
House prices play an important role. No one should want house prices to rise at double or treble the rate of earnings growth to reach affordability levels that effectively mean homes in places with decent jobs are out of reach for most people. The latest figures show the UK housing market is currently matching average loan-to-income ratios seen just before the 2008 crash. These are worrying times for financial regulators.
Yet there is almost an audible cheer down every British street when a house or flat sells for more than the previous one. Similarly, headlines predicting a downturn can spark panic. That’s the case in the suburbs of Burnley as much as in Guildford’s more well-to-do avenues. Property is something to hang on to and maximise. Pay as little stamp duty or capital gains tax as you can. Make sure the proceeds are recycled to provide a leg-up for your own offspring.
Even those who hate the tyranny of rising house prices feel unable to play by an older set of socialistic rules when it feels like everyone else is looking after number one.
It is against this backdrop, one where baby boomers, whatever their background and income level, are hoarding their money and assets as best they can, that the debate over the triple lock plays out.
The chancellor, Philip Hammond, first hinted at the need to ditch many of the tax and benefit promises made by the Tories before the 2015 election in the autumn statement last year. It was Hammond who was first to say the triple lock on pensions – which links the basic state pension to whichever is the higher of earnings growth, inflation or 2.5% – needs to be rethought. Since then, Theresa May has dodged questions about the triple lock, revealing her sympathy for a review.
Hammond and May can see that the economy is weakening, following a squeeze on disposable incomes from higher inflation and stagnant wages growth. The knock-on effect to lower tax receipts is going to put pressure on the government’s finances and the chancellor will need to raise money to keep his deficit reduction plan on track.
On the surface, scrapping the third element of the triple lock, the guarantee of a 2.5% annual rise in the state pension, merely fits into this broad tax and benefit grab by the Treasury.
The message is that pensioners must join the rest of society as austerity bites.
Labour, which has promised to maintain the triple lock, and pensioner groups argue that those on the lowest incomes will be the worst affected.
That’s true, especially when the government’s cuts in the real value of the state second pension, and the move to a flat-rate pension, are taken into account.
However, campaigning for a universal benefit also feathers the nests of the better off. And why should today’s workers make sure pensions increase at a faster rate than their own pay, especially when it leads to greater income inequality among the old? And yes, income inequality is growing among the country’s 12 million pensioners.
A spokesman for the Organisation for Economic Cooperation and Development (OECD), the Paris-based thinktank, said last week that the answer for Britain was to means-test the basic pension.
An alternative would be to design an income tax system specifically for the country’s 12 million pensioners; one that increases the tax burden for the third who have more than enough money to enjoy their retirement. Or, at least, charge the 1.1 million retirees who are still working national insurance.
Unfortunately, all these proposals meet with the same cry from the boomers. “We must save to pay for our own care and support our children.” So it’s impossible to shift the dial in favour of all the young while the state refuses to look after the elderly in care, and build enough homes for those on low and middle incomes to bring down prices. Only then will wealthy boomers stop taking more out than they put in and hoarding it.