David Kingman looks at the findings from one of IF’s most recent pieces of research, which examined the impacts of Britain’s ageing population on our electoral system

The Rise of Gerontocracy? Addressing the Intergenerational Democratic Deficit, by Dr Craig Berry, on behalf of the Intergenerational Foundation

Earlier this year the Intergenerational Foundation commissioned Dr Craig Berry, a former Senior Researcher with the International Longevity Centre and Policy Advisor on Older People and the State Pension at HM Treasury, to investigate the impacts of Britain’s ageing population on its electoral system. The results provide a fascinating insight into how, through a variety of factors, older people are fast becoming the dominant interest group in British electoral politics.

Britain is justifiably proud of its long history of representative democracy. Yet the reality of “one-man (or woman), one-vote” has never been as simple as it appears: people who have similar demographic characteristics, or who belong to particular interest groups, have often formed powerful voting blocs whose favour politicians have to curry if they want to achieve office.

The older age cohorts – often referred to as the “grey vote” – have been given particular attention in recent years as a voting bloc, both because their numbers are growing as the population ages, and because they are much more likely to vote than people in younger age cohorts. This makes them a major target for political strategists at each election-time, and has led to fears that politicians will attempt to transfer resources to them from other age groups in return for votes.

The Rise of Gerontocracy? analysed demographic data in order to work out which age cohorts contained the largest numbers of potential voters, and also looked at how likely they were to vote based on turnout data from recent elections. Together, these measures enabled Dr Berry to calculate the voting power of different age groups, and project how this will shift in future decades.

The report’s conclusions were stark, as Dr Berry states in his Executive Summary:

“Unless the political marginalisation of young people abates, we are in danger of creating ‘Generation D’, a succession of disenfranchised cohorts with little say in how their society is governed. Today’s young people (‘Generation Y’ or ‘the jilted generation’) are suffering a democratic deficit, but we can expect this trend to accelerate in coming decades.”

Altogether, it manages to make a compelling argument that political analysts have not previously taken the issue of ageing amongst the electorate seriously enough. His analysis of voting patterns at the 2010 general election is particularly significant:

“At the 2010 general election, 40-somethings were dominant at the ballot box. The youngest voters, and voters in their early-30s, were particularly disadvantaged. There were more potential voters aged 50, 51, 52 or 63 than any single age between 31 and 36, more potential voters aged 62 than any single age between 32 and 35, and more potential voters aged 50, 51 or 63 than aged 18. The potential voting power of people approaching retirement in 2010, whose life chances will be affected by electoral outcomes to a far lesser extent than younger voters, is therefore highly significant.”

Overall, he concludes that the government needs to make a series of reforms if it wants to re-enfranchise younger voters, from lowering the voting age to 16 (although the relative lack of people aged 17 and 18 means the effects of this wouldn’t be particularly significant) to increasing political education, and possibly having parliamentary advisory groups or forums made up exclusively of younger voters. These moves may seem radical, but this report shows that if Britain is serious about maintaining its traditions of representative democracy, all initiatives which aim to increase the political representation of younger people will need to be considered.

, the latest book in the Radical Futures series, sponsored by IF

Regeneration, part of the Radical Future series, edited by Clare Coatman and Guy Shrubsole with a foreword by IF co-founder Shiv Malik

Regeneration was launched on 23 February at Foyles bookshop in Soho with an event chaired by BBC economist Evan Davis. He led a panel debate which included IF co-founder Shiv Malik and several of the book’s contributors answering questions from the audience. A video of the debate can be viewed on the IF website here. We also recorded interviews with several of the book’s other contributors, including co-editors Clare Coatman and Guy Shrubsole, which are available from Intergenerational TV.

Regeneration itself is a collection of twenty-three essays written by a diverse range of contributors on different aspects of intergenerational justice. They provide a broad spectrum of perspectives, from Ben Little’s call for a new economics to Ray Filar’s argument that we need the insights offered by “queer feminism” to advance our concept of gender relations, which all seek to add something new to current debates about our economic and political future.

Two of the contributions were written by prominent Intergenerational Foundation supporters. Kirsty Schneeberger MBE is the founder of Think2050, a campaign group which encourages leaders to think about the future by imagining where they will be in 2050, and what kind of world they would like to be living in. She wrote the final article in the book, titled “Those yet to be born: representing the rights of future generations”, in which she robustly makes the case for why the British government should establish an ombudsman for future generations, following the example set by Hungary in 2008.

Since his election as Hungary’s first Parliamentary Commissioner for Future Generations four years ago,  Sándor Fülöp has received over four hundred petitions from the general public, mostly relating to matters of sustainable development, seventy of which he has forwarded to the Hungarian Parliament for investigation. Under the Hungarian Constitution all citizens of Hungary have a right to a clean and healthy environment, and the fact that it is a constitutional right means that its legal scope extends to cover future citizens as well. The Commissioner has been given responsibility for representing their interests when any government actions which might have an impact on this right are being debated, and Kirsty Schneeberger eloquently makes the case that the future citizens of Britain should be represented to a similar degree as well.

“A contract between generations: pensions and saving” is the contribution written by Craig Berry, who is also the author of The Rise of Gerontocracy? Addressing the intergenerational democratic deficit, IF’s recent report on how older generations have a disproportionate impact under the UK electoral system.

He provides a fascinating overview of how the pensions landscape has changed during the last thirty years, with the decline of more generous defined-benefit pension schemes and the rise of riskier, less-egalitarian individual private pensions, which will leave many of today’s young workers with very little when they retire. He calls for a radical shift in pensions policy towards greater “financial citizenship”, in which people of all ages will be encouraged to save by feeling that they have more say over what happens to their money and who controls it.

This is just one of the policy recommendations from this excellent book which, if they were to become law, would give young people in Britain today the prospect of a much fairer, more prosperous future.

Regeneration is available to download for free from Lawrence & Wishart (or £12.99 for a printed copy):

http://www.lwbooks.co.uk/ebooks/Regeneration.html

With personal experience as a City Councillor in Norwich, Samir Jeraj explains why, sadly, young people are under-represented in local government

A few days after my 23^rd birthday, I was elected as a City Councillor for the Green Party in Norwich. It was possibly one of the best and, on reflection, most life-changing decisions of my life. However, it’s four years later and, like many young councillors, I’ve decided not to stand for re-election.

Why is it that young people are largely absent or in a significant minority in local government?

Getting older, not younger

Ask any student of British political reform and they’ll point out that the history of reform in Britain is one of long, agonising steps towards patently more democratic and fair political systems. Almost a century elapsed between the ‘Great Reform Act’ of 1832 and universal suffrage in 1928.

In 2007 such a step happened: young people between the ages of 18 and 21 were allowed to stand for election to local government.

A year later, a census of councillors noted with alarm that “The average age of councillors has increased from 55 years in 1997 to 59 years in 2008, and the proportion under 45 has fallen from 18.4 per cent to 13.1 per cent over the same period.”

My own particular election went against the grain in a lot of respects. Firstly, aside from being young, I am also from a BME (Black and Minority Ethnic) background, like around 3.4% of other councillors.

Secondly, I was elected as a Green Party Councillor (one of about 100 at the time across theUK).

I was elected to a political group where five of the thirteen of us were in our 20s, and a Council with at least another one or two councillors in their twenties and several more in their 30s.

There was a noticeable difference between the political groups, with the Labour and Liberal Democrat Parties tending to select and elect older candidates, and the Green Party and Conservative Party selecting younger candidates.

 A system that favours the old

As with most problems, there are structural causes. In this case I’m content to lay the blame at the electoral system on the one hand, and broader social and economic structures on the other (i.e. neoliberal capitalism).

First past the post systems breed conservatism and caution amongst political parties. In a system where a single vote is enough to win, the risk of losing– or of not winning– ensures that parties tend to select safe and known candidates. In a choice between selecting an older, established local activist and a young newcomer to the area, it is very likely that established local parties will stick with the person they know until he or she steps aside. Deselection, or defeat in selection, is a bitter process which often results in the previous candidate running as an independent and splitting the vote.

Young people are often seen as a risk in general, because they are less settled (i.e. more likely to have to move away for work etc.), more likely to have a full time job and not put in as much time, and more likely to have young children and family commitments. A four-year term of office can be a long time for someone in their twenties. Were they to have to resign, a costly by-election would have to be held, with the risk that the incumbent party would lose.

At its worst, this can emerge as a deeply unpleasant and negative attitude towards younger candidates and councillors with labels such as ‘bed-sit trot’, ‘not from the area’, and ‘parachuted’ being used.

The need for reform

The solution is fairly simple in this case. Elect local government by PR and get rid of the absurd, costly, and unrepresentative process of by-elections.  We need to get to grips with the fact that, as a society, we are less settled, and more likely to move around for work.

Money is the other major issue facing most young councillors. The average councillor puts in around 22 hours a week, for which they received an average basic allowance of £6099 per year, meaning approximately £5.38 an hour.

For those already in full-time work, the law requires that employers provide some time off for duties as an elected representative; in practice only the most sympathetic employers (the public sector stands out in this regard) will do this. Hence there is a bias towards retired, independently wealthy, and self-employed councillors.

Interestingly, where there have been major overhauls of local government (e.g. Scotland), councillor basic allowances have been set at far more liveable levels.

Ideally there would be a similar system to Scotland in the rest of the UK, with a decent basic allowance being set, and then pegged against staff salary rises, so there wouldn’t be the four-yearly battle to raise what is generally terribly low pay in one leap.

Unfortunately, such a proposal across local government would be met by such vicious hostility (just type in ‘councillor allowances’ into Google) that it’s unlikely that anything short of including such a measure in a major reform could achieve this end.

David Kingman was present as the ONS officially announced the UK’s full pension liabilities for the first time at the Royal Statistical Society on 27 April

On Friday 27 April, the ONS held a seminar at the Royal Statistical Society headquarters in Errol Street, east London, where they officially announced the UK’s full public and private pension liabilities for the first time.

Complete liabilities

The results showed the extraordinary sums that Britain has committed to pay its future retirees. In total, the UK is committed to paying £7.1 trillion in pensions to people who are currently either already retired or still in the workforce.

This is equivalent to nearly five times the UK’s total economic output. Such a figure may be hard to put into proportion, as a trillion – a thousand billion – is obviously a huge number.

If you try to work out what a trillion pounds would look like you get some amazing statistics. A trillion one pound coins arranged next to each other would stretch around the equator over 78 times, and their combined weight would be 105,263 metric tons (or more than ten times the Eiffel Tower). Counting out that many one pound coins, at a rate of one coin per second, would take you 31,709 years.

This figure for the total liability includes private sector liabilities, which are less onerous on future generations because they are all funded. Private sector workplace pension schemes have total liabilities of £1.7 trillion, and this total is likely to decrease over time as so many private sector pension schemes have been closed to new entrants and stopped allowing further accrual by existing members. There is an additional £0.4 trillion worth of liabilities for individual private pensions, but these are also fully funded.

More important are the total government liabilities of £5 trillion. These break down as follows:

• Government employee pensions: £1.2 trillion (unfunded: £0.9 trillion; funded: £0.3 trillion)
• State pensions: £3.8 trillion (all unfunded)

The difference between the funded and unfunded liabilities is very significant. Funded liabilities refer to pension schemes where the money that people pay in as contributions is invested in a fund that floats on the financial markets, so that enough money to pay the pensions builds up over time.

Unfunded schemes work in a different way; with these, the money people pay in is paid out again straightaway on current pensioners, with any difference between incomings and outgoings being met through general taxation. In practice, they are a mechanism for transferring money directly between current workers and those who are in retirement.

Of the government’s liabilities, the most daunting is the £3.8 trillion that will have to be spent on state pensions, which is mostly accounted for the Basic State Pension (BSP). These work on an unfunded system, with only a very weak relationship between the amount of money an individual has paid in through their National Insurance contributions and the benefits they are eligible to receive.

The liability for state pensions is equal to 263% of Britain’s total GDP, which is actually slightly below the EU-level average of 278%. The scale of state pension liabilities is rather surprising given that Britain has a notoriously ungenerous state pension, a fact which will restrict the government’s political room for manoeuvre if they need to make changes to it in the future.

Most of the government employee pension liabilities of £1.2 trillion are unfunded, as only £0.3 trillion of them (largely in the Local Government Pension Scheme) are being run on a funded model. This represents a huge burden which the present generation is passing on to its children and grandchildren down the line.

Longevity assumptions and discount rates

It was a positive move by the ONS to disclose this information, as it means commentators and policy-makers have access to an official assessment of Britain’s pension commitments for the first time. The size of the challenge we are setting future generations to pay off these liabilities is clear. However, there is the possibility that the true picture could be even grimmer than these figures suggest.

Certain assumptions underpin these figures which could be open to questioning. Firstly, there is the discount rate. As pension liabilities naturally span long periods of time, amounts of money which will be paid in the future need to be converted into present-day money in order to estimate their cost. This is done using an accounting device called a discount rate.

As the discount rate which is chosen has a big impact on the overall size of the liabilities, it is a very important number. There is also a strong political element to the discount rate which is chosen, as using a higher one makes the future liabilities appear to be smaller, and thus the case for painful reforms in the present day less urgent.

In calculating these figures, the ONS used a discount rate of 3% as mandated by Eurostat, the European statistics body. However, this is convenient for the government, as the ONS also announced that reducing the discount rate by 1% made the liabilities one-third larger. A discount rate of 1% – potentially in line with our average rate of real economic growth over the next few years – would paint a bleaker picture still.

Longevity assumptions are also important when projecting the future cost of pension liabilities, as the cost of pensions obviously goes up the longer you expect people to live. Longevity assumptions have persistently been underestimated in previous estimations of pension costs, so it would provide better information if the ONS included projections of the liabilities using a range of different longevity assumptions in its figures.

When is a liability not really a liability?

Aside from the economics of the figures themselves, underpinning all this information are certain key questions over the nature of pension liabilities.

When it isn’t underpinned by a fund, a pension liability is essentially a promise to pay someone a certain pension when they reach a certain age, in return for contributions during the years beforehand. The government makes this promise to virtually all its citizens over the state pension, in return for National Insurance contributions, while government employee pensions also rely on the same principle.

The interesting question is whether the government can get out of any of these promises if it doesn’t think it can afford to honour all of them. If it comes down to competition for limited resources, which promises are more binding – those it’s made to general citizens, or its own employees? To put it bluntly, who gets first dibs on the money?

Dave Hobbs of the ONS gave a talk at the seminar in which he made the argument that pension liabilities are not the same as other debt commitments because they are non-contractual; people may be expecting a pension, but the government has the ability to change what they’re entitled to. He cited the recent changes made to public sector pensions as proof that the government can move the goalposts should it need to.

While this may be true to an extent, such a strategy surely has it limits. After all, the negative response from trade unions to the fairly modest reforms proposed by Lord Hutton has shown that the government’s powers are limited when it comes to changing the pension arrangements for its own workers. As for the state pension, what government would dare interfere with the benefits expected by the over-50s, given their willingness to vote? While in theory the government can wave a magic wand over its pension liabilities, in reality any government which tried to do this would surely be punished at the ballot box.

The ONS has enriched the debate over pensions by publishing this information, but they need to go even further next time, recognizing that these liabilities will have to be addressed, and providing a sensitivity analysis that includes a range of discount rates and longevity projections. Only then can we have a genuinely free and fair debate over the correct policies for solving Britain’s pensions crisis.

Annie Lund reports on the good news that a government consultation has rejected the proposal to penalise the early repayment of tuition fees, in line with objections raised by IF

There was a bit of intergenerational good news last month: after a consultation process, the Department for Business, Innovation and Skills (BIS) decided to drop its idea of imposing financial penalties on graduates who repay their student loans early.

The proposal put forward last year contained two main ideas regarding early repayment penalties. The first focused on so-called high payers: those wishing to make large, lump sum early repayments, with a suggested 5% levy on repayments over £3000. The second focused on high earners: those on salaries over a certain point, say £41,000, with a suggested levy on all of their early repayments.

With the new student loans system charging interest on students’ debt according to their salary, the proposal’s aim was to creative a ‟progressive” repayments system in which those able to repay loans early did not avoid making a full contribution to the system in the repayment process by ridding themselves of debt before their salaries – and in turn their repayments – increased in size.

IF’s objections

IF’s response was founded, unsurprisingly, on purely intergenerational grounds. It was guided primarily by its approach to student finance and concern over the impact of large debts held by the younger generation. With future graduates having to pay more for their tertiary education than current and past ones, over a longer period of time and with higher interest rates, the financial burden is likely to hinder young people’s progress towards the milestones of adult life such as marriage and the purchase of a house. It therefore follows that the financial burden of university education after graduation should be as small as possible and the quicker the repayment, the smaller the burden. Early repayment should therefore not incur any penalties.

A warning, however: early repayment will not necessarily be advantageous for all graduates, since – under the new system – graduates on lower incomes will end up never repaying their entire debt before it is written off thirty years after leaving university. Early repayment by those who fall into this category will be money down the drain. Unless, of course, a future government rescinds the thirty-year write-off deal – which, under current arrangements, it will be perfectly entitled to do.