Which generation has been hit hardest by the government’s austerity measures? It is the question that has been at the top of the political agenda since the budget sparked accusations that the government was raiding pensioner’s pockets with a new Granny Tax.

Others, such as Universities Minister David Willetts, have argued that many new pensioners who were part of the baby boom generation have got rich at the expense of their children and ought to give some back.

The FactCheck team looks at some of the financial pressures on different generations and how the pain of austerity has been shared.


If you were born in 1946, at the start of the post-war population explosion, you are likely to be claiming the state pension now, as the age of retirement was 65 for men and 60 for women. It is unlikely the age of retirement will ever be as low as that again, thanks to the demands of an ageing population.

If you have paid enough national insurance over the years, you are entitled to a maximum basic state pension of £107.45 a week. That may not be much, but the payment is at an all-time high, when adjusted for inflation.

And there is a good chance that if you began work in the mid-1960s you were one of the 8 million or so people who enrolled in a private sector defined benefit pension fund as well.

By 2010 the number of active members had dropped to around 3 million. Comparisons with new entrants now are almost impossible as defined benefit pensions, which are far more generous than defined contribution, have almost disappeared in the private sector.

Department of Work and Pensions estimates from 2009 put the average recently retired couple’s income at £611 a week. By comparison, the average gross weekly income of a UK family is £699 a week.

The gap is even smaller after tax and housing costs, and it has been narrowing quickly over the last ten years. Between 1998 and 2008 net pensioner income after housing costs went up by 38 per cent, and average earnings only rose by 12 per cent.

Government figures suggest that steady increases in earnings, state benefits and occupational pension payouts have made up for underperforming investment yields.


Many analysts argue that the post-war generation owns a disproportionate amount of the nation’s wealth, mainly due to higher rates of home ownership and soaring property values since the 1960s.

According to the Chartered Insurance Institute (CII), baby boomers could own as much as 80 per cent of the nation’s £6.7tr of wealth – with much of that tied up in property.

That’s hardly surprising, when you consider that house prices went up 273 per cent in real terms between 1959 and 2009, according to Halifax, the equivalent of a 2.7 per cent rise every year. Over the same period, earnings rose by an average of just 2 per cent.

But that alone may not be enough to explain why many pensioners are living in relative comfort. The CII report backed up what anecdotal evidence had always suggested – that the boomers were a generation who saved considerably more and borrowed less than people now in their thirties.

Family finances

According to the Institute of Fiscal Studies, the coalition government’s austerity measures since 2010 have hit working families the hardest.

If you were born in 1977 you are likely, on average, to have at least one child by now. The average age of women giving birth in England and Wales is now 29.5 (in 1970 it was 26.7).

Changes to the tax and benefits system introduced by the coalition government have hit households with children harder than any other group, according to the Institute of Fiscal Studies.

The IFS predicts that families will see their annual income fall by £1,411 (3.7 per cent) by 2014 thanks to government reforms, compared to a loss of £315 (1.4 per cent) a year for pensioners.

There are of course other financial pressures on Diamond Jubilee babies. The average age of a first-time buyer is now 35, according to research by Post Office Mortgages. In the early 1960s it was just 23.

In the early 1970s, the average UK property cost around £60,000 at today’s prices and now costs more than £160,000 according to Nationwide.


Teenagers due to turn 18 this year are far more likely to go to university than their parents or grandparents, but it will cost more, and there will be an especially steep rise from this year following the government’s hike in tuition fees.

If you went to university in 1964, you would have been in a minority. Only around 216,000 young people went into full-time higher education – just 8.5 per cent of under-21s. Last year the equivalent figure was about 1.5 million.

A university education in 1964 was completely free for most students, regardless of financial background.

Many universities have opted to charge the maximum £9,000 for some degree courses from 2012, and one survey put the average predicted debt at £53,400 for 2012 entrants, compared to £26,100 for the class of 2011.


Job prospects for young people are bleak right now whether you are a graduate or not. Just over a million 16-24-year-olds out of work, a rate of 22.5 per cent – some of the worst figures since comparable records began in 1994.

In the last ten years, the employment rate for 16-17 year olds has dropped from 45 per cent to 23 per cent; while for those over 65 the rate has climbed from 5 per cent to 9 per cent.  This goes some way to dispelling the myth that young people are taking all the jobs from older workers.

Plus, as the Intergenerational Foundation pointed out to FactCheck, anyone over the age of 16 earning more than £7,250 per annum has to pay 12 per cent National Insurance. Meanwhile employers or employees aged over 65 are exempt from NI.

Unemployment among new graduates available to work is running at about 20 per cent, and the percentage of recent graduates doing lower skilled jobs has risen from 26.7 per cent in 2001 to 35.9 per cent in 2011.

While youth unemployment figures do not stretch back that far, prospects for graduates and school leavers born in 1946 would certainly have been good with overall unemployment hovering around 2 per cent – regarded by many economists as “full employment”. Today’s rate is 8.3 per cent.

Any significant spell of unemployment will of course dent your lifetime earnings. But that is not the whole story, according to an increasing body of evidence.

Yale economist Lisa Kahn that young Americans unlucky enough to graduate at the low point of the 1981-82 recession were still earning less decades later compared to people who got a better start to their career.

She calculated that the financial penalty, in terms of lost and lower earnings, of entering the job market in a bad year was the equivalent of being saddled with a $100,000 debt.

The verdict

Despite the furore over the so-called Granny Tax announced in this year’s budget, George Osborne has actually hit families harder than pensioners overall.

Thirtysomethings with children might justifiably resent the soaring house prices that have made their parents richer and kept them off the property ladder.

But it’s the 18-year-olds who have the most to complain about as they face a perfect storm of soaring education costs, dwindling job prospects and the death of generous pensions.

And there is some evidence that this could lead to a lifetime of underachievement for those unlucky enough to enter the job market in the depths of recession.

By Patrick Worrall

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