The Budget for the upcoming financial year was released yesterday, to the usual hubbub from the media.
In a recent article from the Guardian, it suggests the amount of money spent on older age groups is making it increasingly more difficult for younger generations to accumulate wealth. It is also claimed that the older generation have experienced a stronger increase of disposable income than younger age groups.
So let’s have a closer look at the statistics to see if the way the government spends its budget on pensions supports this theory. Public spending data is easily available from various government websites, as well as population figures.
Figure 1: Percentage of total Government spend on pension
Figure 1 shows how the percentage of the budget spent on pension has experienced a gradual increase over the last 35 years. In fact, the government spent twice as much on pensions in 2015 compared to 1980.
This may sound reasonable given the population of the UK is aging rapidly, which be due to the large number of births between 1945 and 1965 (the “Baby Boomer” generation). The development is visualised in the population pyramid below.
Figure 2: Distribution of UK population across age groups
However, does this demographic development alone justify the enormous jump in spending on pensions? After all, upon inspection of the graph it doesn’t look like the over-60 demographic has changed dramatically.
When taking a closer look on the growth rate of the age group of over 60 years and the fraction spent on pensions, it becomes obvious that the increase of pension spending is not proportional to the growth rate of this age group.
Table 1: Comparison of population and pension spend 1980-2015
While the age group of over-60 year old citizens grew by three percentage points, the fraction spent on pensions almost doubled within the same period of time. In Table 1, it can also be seen that the age group between 20 and 59, which forms the majority of the working population, also grew in this period.
So these figures support the conclusion of the Guardian article which claims that the way the budget is spent has a positive impact on the income of older people and puts a strain on younger generations.
So let’s also take a look at other parts of the budget which rather favour certain age groups. In graph below, it can be seen that while spending on health and pensions increased since 1980, the percentage of the budget spent on educations remained fairly stable and even declined slightly in recent years. This, again, suggests that, apart from pensions, the government’s spending is rather beneficial to older citizens than to younger age groups.
Figure 3: Percent of total government spend on pensions, health and education
It also becomes obvious that the way the budget is spent is clearly not only dependent on demographic change but also by the policy adopted by the government of the day.
Of course, this topic is highly complex and various other economic and social indicators have to be taken into account to produce a precise analysis.
However, these simple figures do support the argument that it is increasingly difficult for young people to accumulate wealth because increasingly more money is spent in ways which favour older generations.