Capital Markets

Mnuchin expected to be Trump’s Treasury secretary

Donald Trump has chosen Steven Mnuchin as his Treasury secretary, US media outlets reported on Tuesday, positioning the former Goldman Sachs banker to be the latest Wall Street veteran to receive a top administration post. Mr Mnuchin chairs both Dune Capital Management and Dune Entertainment Partners and has been a longtime business associate of Mr […]

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Financial system more vulnerable after Trump victory, says BoE

The US election outcome has “reinforced existing vulnerabilities” in the financial system, the Bank of England has warned, adding that the outlook for financial stability in the UK remains challenging. The BoE said on Wednesday that vulnerabilities that were already considered “elevated” have worsened since its last report on financial stability in July, in the […]

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Zoopla wins back customers from online property rival

Zoopla chief executive Alex Chesterman has branded rival OnTheMarket “a failed experiment”, and said that his property site was winning back customers at a record rate. OnTheMarket was set up last year, aiming to compete with Zoopla and Rightmove, the UK’s two biggest property portals. It allowed estate agents to list their properties more cheaply […]

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Hard-hit online lender CAN Capital makes executive changes

The biggest online lender to small businesses in the US has pulled down the shutters and put its top managers on a leave of absence, in the latest blow to an industry grappling with mounting fears over credit quality. Atlanta-based CAN Capital said on Tuesday that it had replaced a trio of senior executives, after […]

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BoE stress tests: all you need to know

The Bank of England has released the results of its latest round of its annual banking stress tests and its semi-annual financial stability report this morning. Used to measure the resilience of a bank’s balance sheet in adverse scenarios, the stress tests measured the impact of a severe slowdown in Chinese growth, a global recession […]

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Categorized | Property

The young will inherit wealth or poverty

Posted on December 21, 2013

‘Securing a juicy inheritance may prove the best bet for the generation that came of age under Margaret Thatcher, with their prospects for decent retirement incomes looking increasingly bleak.’

Financial Times, December 17

Is that news? I thought we knew that our pensions were worth nothing.

    Some pensions are worth plenty – including those for many people now on the brink of retirement. This story was based on a report from the Institute for Fiscal Studies, examining the broader question of how today’s 40-year-olds are doing compared with 40-year-olds 10, 20 and 30 years ago.

    In other words, are we richer than our parents?

    To be precise, are we richer than our parents were when they were our age, judging by income, savings, debt, pensions and housing.

    And the baby boomers took all the money?

    The boomer generation did roll like a gigantic steamroller through the past 60 years and did pretty well. Take real equivalised household income.

    Take what?

    A measure of income corrected to take account both of inflation and different family sizes. What the IFS finds is that the generation born in the 1940s – currently about 70 – was richer at the age of 60 than the 1950s generation is today, now aged about 60. And the 1950s generation was richer at the age of 50 than the 1960s generation is today, just as the 1960s generation was richer at the age of 40 than the 1970s generation is today.

    So we’re all getting poorer. But the economy hasn’t been shrinking for 40 years, has it?

    No. It shrank a lot five years ago and has hardly recovered. That is largely why each generation now is doing badly relative to the previous cohort 10 years ago. But there’s more to the story than the recession. What we see is that the 1970s generation had more money when they were young than their parents did. But they spent it.

    They really only have themselves to blame, then.

    Well – perhaps, perhaps not. Nobody knew quite how generous – or expensive – today’s pensions were going to be. Even if the younger generation were far-sighted it’s not clear they would want to pay for quite such gold-plated retirements. But anyway, they were short-sighted, as we all are, and will pay the price. Their parents may have been equally myopic but typically had automatic pensions and didn’t have the same freedom to mess up.

    So today’s thirty and fortysomethings have been screwed on pensions.

    Well, yes, they have. But they’ve also hurt themselves. At the age of 30, the 1970s generation was spending almost twice as much as the 1940s generation and, unlike all previous cohorts, they were net borrowers rather than net savers.

    What about house prices?

    That’s another part of the story, in which everything seems to be conspiring to favour the boomer generation. House prices are near record levels, which of course helps homeowners – who tend to be older. Younger people have struggled not only to buy a home, but also to upgrade the homes they have. According to estimates cited by the IFS, the average age of first-time buyers has risen by five years since the 1960s – but the average age of second-time buyers has risen by an astonishing 15 years. Even people who can get on the housing ladder have only grabbed the bottom rung and are digging their fingernails into the wood.

    No wonder the IFS sees salvation in inheritance . . .

    But inheritance is unevenly distributed, as well as a slightly demeaning way for a 50-year-old finally to establish a pension pot. This is a social mobility issue: young people can’t get ahead without receiving money from mum and dad.

    So what is to be done?

    A spot of strong economic growth would do no harm: although this issue has long been brewing, it has been worsened by the recession. Building more houses would help young people to find jobs and buy homes – as well as deflating house prices and thus shrinking those inheritances. A property tax might nudge a few empty-nesters into downsizing their homes. And it is absurd that as austerity is hitting schools, university, services and working-age benefits, the state pension is sacrosanct for current pensioners. The problem is becoming too acute not to be addressed – too late for today’s thirtysomethings, but not too late, perhaps, for their offspring. If they can ever scrape together the cash to afford children.