28 May 2024

Should the young really be subsidising millionaire pensioners?


From announcing a general election in the pouring rain to the mixed reaction he received for his promise of compulsory national service, it’s fair to say that the Prime Minister’s reelection campaign has not gotten off to a great start. 

And the last 24 hours have been no different. Last night, the Conservatives announced the ‘triple lock plus’. This means pensioners will continue to receive the triple lock – automatic increases of the state pension by at least earnings, inflation, or 2.5% – but also an equivalent increase in the income tax threshold.

Rather odd, you might think, considering that we already spend £110.5bn yearly on the state pension, more than double the Ministry of Defence budget. This rose by 8.5% in April and 10.1% the year before. These were the highest cash increases to the state pension in history and came after a package of support for pensioners last winter worth nearly £5bn.

The new ‘triple lock plus’ policy is estimated to cost £2.4bn a year by 2029-30. In Sunak’s words, ‘thanks to the Conservatives’ Triple Lock, pensions have risen by £900 this year and now we will cut their taxes by around £100 next year’.

This is an astronomical handout to a large section of society that simply does not need it. A quarter of pensioners are millionaires – yes, millionaires – reaching 3.1m in 2020. And who could be surprised? This is the generation who benefited from an era of strong economic growth, much lower house prices, and as a result, were less likely to be in poverty than younger generations.

Meanwhile, in recent years, many workers saw a real-term decline in their incomes, are facing a stagnant economy and tax increases as a result of frozen brackets. Younger people are also facing immense difficulties getting onto the housing ladder, with the median home now costing over 8 times average earnings.

Is it fair that young hard-working taxpayers are being forced to foot the bill for ever more generous handouts to pensioners? 

Politically, it makes sense. Conservative voters tend to be older. In the 2019 general election, for every 10 years older a voter was, their chance of voting Tory increased by around nine points. The electorate as a whole is also disproportionately old — in more than half of constituencies, more than half of likely voters (based on historic trends on turnout) are now over 55.

Increasing support for pensioners while simultaneously alienating young people and their economic chances may pay off in the very short term. It might soften the blow at the July election and even win the Conservatives a few extra votes among older age groups.

But what about the long term? The old adage ‘if you’re not a liberal when you’re 25 you have no heart, and if you’re not a conservative by the time you’re 35 you have no brain’, often falsely attributed to Churchill, suggests that new generations become conservatives with age. As new generations acquire property, earn more, and feel they have a stake in the economy, this could reasonably be true. The problem is that this isn’t happening. Younger cohorts are not becoming more conservative.

Either way, ‘the social contract’ (if there ever was one) is now broken. We cannot sustain a system in which young people work and pay extortionately high taxes, footing the bill for millionaire pensioners. By handing out this blatant political bribe, the government is behaving like Robin Hood in reverse – by stealing from the poor, it’s lining the pockets of the rich.

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Reem Ibrahim is Communications Officer at the Institute of Economic Affairs.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.