Old age finance reforms offer new hope in generational wealth divide

But we can’t swerve the personal cost of longevity

Could a controversial rise in national insurance payments be a good thing? (PA Archive)

If you believe that personal finance is anything but a generation game, yesterday’s announcements are likely to have relieved you of that misconception.

After a lifetime of wealth accumulation, alongside some particularly lucky timing on everything from free education and other state support to housing market swells, baby boomers come out top in almost every wealth survey for the last 20 years.

Now, two highly controversial strategies that pitted this demographic against, well, everyone else, have been carved up. The numbers involved are so big that each depends on the other and the outcome of both will significantly alter the financial circumstances of millions of people for decades to come.

Long before Covid, Brexit, the financial crash and any other recent economic catastrophe you care to name, the now infamous statistic about baby boomers holding 80 per cent of UK wealth was well established.

Then policymakers, no doubt with one eye firmly on voting profiles, started curbing working-age state support while introducing one of the most absurd guarantees in British economic history.

The pension triple lock had assured retirees of an annual rise in their state pension to the tune of either wage growth, inflation or 2.5 per cent, whichever is greater.

Immediately criticised in the strongest terms for being eye-wateringly expensive, as it has so proved, every Budget since has prompted a new round of speculation that this, surely, would be the statement that would call time on such a divisive and short-sighted promise.

But chancellor after chancellor has resisted. Until now.

It may have been enshrined in the Tory manifesto for this parliament, but with the end of furlough skewing average wage growth figures, an 8 or even 9 per cent rise in the state pension was on the cards. It would have been by far the greatest since the introduction of the lock, with an £8bn price tag for workers’ National Insurance (NI) next year and every future year, according to figures from Aegon.

Instead, as widely predicted, retirees will receive state pension increases in accordance with inflation or 2.5 per cent – a figure not far off the 2.5-3 per cent most often seen since the triple lock was introduced anyway.

“For some, pausing the triple lock will not come as a surprise – particularly as the government has attempted to balance the books to pay for their generous Covid support schemes,” says Andrew Megson, executive chairman of My Pension Expert.

“However, this significant change in policy could cause a great deal of financial anxiety to the many pensioners who would have otherwise depended on the triple lock to stay afloat.

“Of course, policies must be adapted in accordance with the changing economic environment. However, pensioners will likely feel unfairly penalised. While independent financial advice is available to help savers adjust their retirement strategies accordingly, it is vital that the government outlines the finer details of the changes in the coming days, as well as offering the appropriate reassurance that this is only a temporary pause.”

Unfortunately, many already suspect this pause will become a permanent one.

But why is the state pension so inextricably linked to social care, and why break two manifesto pledges in one go? Because yesterday’s announcement on social care – also a long time coming – was an even more expensive one and we simply can’t afford both.

The all-important details are still in the pipeline but the basics are that from October 2023 those requiring care from October 2023 will no longer pay more than £86,000 for that care over their lifetime.

Anyone with less than £20,000 in assets presumably including property, will have their care paid for entirely by the state and tapered help will be available to those with up to £100,000 based on means-testing.

At a cost to the state of around £12bn a year, and reliant on a 1.25 per cent increase in both shareholder profits and NI from April next year before becoming a separate Health and Social Care Levy in 2023, the announcement means an extra £255 tax bill for someone earning £30,000, rising to £505 for those on a £50,000 annual income.

Make no mistake though, regardless of heated wrangling in the Commons or even between the generations out here in the real world, growing old will still be a personally expensive business.

Last year, the average cost of relatively straightforward residential care was £35,000 a year for example, with nursing care understandably more expensive still.

And though the workplace pension will be a lifeline for millions of upcoming generations – if not the current cohort of retirees, the self-employed or part-timers – the steady creeping of housing costs well into retirement is just one reason that life after work is set to be an ever greater drain on both state support and lifelong savings.

This week’s news will make a difference, especially to those who can least afford the unavoidable cost of ageing. But whatever our age today, there will be bills to pay as we grow older – often big ones.

Somehow, we need to be ready for them.