XXXXXXX XXXXXXX
dramatically relative to earnings, the generosity of private pension provision has fallen substantially. In the early 2000s, it became clear that the generous defined benefit (DB) pension schemes many employers had in place were unaffordable, with key reasons being increases in expected longevity and poor stock market performance. Most firms responded by closing these schemes to new members, in many cases replacing them with less generous defined contribution (DC) schemes. For those born in the 1950s and 1960s, the result was a sharp decline in the proportion of private sector employees who were active members of a DB scheme as they moved through working- age life (and in many cases moved employer). But for those born in the 1970s and early 1980s, it means that the vast majority of private sector employees have never had access to a DB pension scheme. In their early 30s, less than 10% of private sector employees born in the early 1980s were active members of a DB scheme, compared with more than 15% of those born in the 1970s and nearly 40% of those born in the 1960s. As mentioned above, the switch from DB to DC schemes has been associated with a large reduction in the generosity of employer pension contributions. Of those in DB schemes in 2015, 90% received an employer contribution equivalent to 10% of their earnings or more, compared with only 13% of those in DC schemes. The switch also represents a transfer of risk from employers to employees as, in DB schemes, firms rather than employees bear the investment return and longevity risk. There is therefore
good reason to think that younger cohorts will struggle to accumulate the pension wealth of their predecessors (certainly as a share of earnings), and they will certainly face greater uncertainty with regard to their future living standards than those cohorts with greater access to DB schemes. It is not all doom and gloom for younger generations in terms of wealth accumulation. The introduction of ‘automatic enrolment’ means young adults are now more likely to be accumulating some private pension wealth than those born in previous decades were at the same age – though it is uncertain whether this effect will persist as the minimum amount people are required to contribute. And younger generations are much more likely to inherit significant wealth than older ones were – though it is those who already have the most wealth who are expected to benefit to the greatest extent. In fact, the role of inherited wealth could
be to transform an issue of wealth inequality between generations into one of wealth inequality within the younger generation. Combined with the challenges young adults face in attempting to accumulate wealth of their own in the form of property or pensions, the increasing significance of inheritances and other intergenerational wealth transfers could mean we’re heading for a future where how much wealth your parents have matters more than it used to. n
i
Andrew Hood is a Senior Research Economist at the Institute for Fiscal Studies (IFS) working in the Income, Work and Welfare sector.
Email
mailbox@ifs.org.uk Web
www.ifs.org.uk/people/profile/612
WINTER 2018 SOCIETY NOW 29
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36
