New report asks whether retired should fund more of welfare state

A welfare generation: lifetime welfare transfers between generations

This Resolution Foundation research looks at the past contribution of generations towards the welfare state and the relative benefits they received. It also considers two future models for welfare state spending and where the tax burden falls in each scenario.

The report considered the following generations (birthdates are approximate):

• The forgotten generation (born 1896-1910)
• The greatest generation (born 1911-25)
• The silent generation (born 1926-45
• Baby boomers (born 1946 – early to mid-60s)
• Generation X (born early to mid-60s to the early 1980s)
• Millennials – Generation Y (born early 80’s to mid-90s/early 2000s)
• Generation Z (born mid-90s/early 2000s)

Earlier generations benefitted most, who made the least contribution to the welfare state, because they were coming to the end of their working lives (the forgotten and the greatest generations). The silent generation benefitted least because they were working when the welfare state was founded.

The baby boomers have also done well out of the welfare state because they are living longer.

The report identifies two scenarios, each with their own problems:

Maintaining the generosity of today’s welfare state

This scenario assumes that current spending and support levels continue – probably through an increased tax burden. This would mean that in the future millennials would do well but, as they are likely to live even longer than baby boomers, there will be an increasing cost to generations that follow.

Spending levels per head remain the same

In this case, Millennials and future generations would all lose out to baby boomers.

The research questions whether future generations should shoulder the whole burden of welfare state funding, given the wealth levels of many retired people.

“While the precise path of future welfare spending remains hugely uncertain, it is clear that successive governments have so far failed to adjust either the UK’s tax-raising potential, or its welfare promise for current and future generations, to account for future fiscal pressures. Managing this trade-off is key to finding an equitable distribution of resources across generations and to maintaining the inter-generational contract.

In facing this challenge, it is important to question one assumption that is common to both of the scenarios we have described: that the additional tax burden associated with funding the services we currently value should fall on current or future working age populations. This is particularly the case given cohorts now entering retirement have wealth levels at each age exceeding those of both previous retirees and generations that follow.

The net lifetime benefits for younger generations will be decided by future policy choices. As policy-makers wrestle with big questions about the future path of tax and spend we should remember the significant implications for generational living standards and equity.”