Policy decisions since 2010 – particularly in the area of social security – “have played a key role in the shift in spending towards older generations”, Resolution Foundation claims.
As part of its Old age tendencies report, which looked at the impact of spending, tax and benefit decisions taken since 2010 “through the lens of intergenerational fairness”, it said what stands out is the £44bn increase in expenditure for older age groups.
Public spending on the state pension, pensioner benefits and old-age health is expected to amount to £270bn in 2024/25, which is equivalent to 9.8% of gross domestic product (GDP).
Since 2009/10, spending on pensioners will have increased by 0.5% of GDP, up from 9.3%, as the number of people claiming the state pension has risen from 12.4 million to 13 million.
However, this population has “increased demands” on the healthcare system, with real spending here growing an estimated 36%, “with about half of that explained by demographic changes”, Resolution Foundation said.
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It added that changes to benefit policy since 2010 “have favoured older age groups”, naming the pension triple lock policy (which increases the state pension by the higher of growth in average earnings, prices or 2.5%), as well as the “more generous” flat rate new state pension as key policies introduced by the Conservatives.
“The triple lock is the most important single policy decision directly affecting pensioner incomes taken by Conservative Governments since 2010 and has led to the value of the state pension rising by 60% between 2010/11 and 2023/24”, it noted.
This is faster than growth in average earnings (46%), and is double the increase in the basic rate of working-age benefits over the same period (30%) or a real-terms rise of 16%.
For working-age household incomes, there’s been a “negative impact”, with the narrowed benefit eligibility and cuts to needs-based support between 2010 and 2015, freezes on most non-pensioner benefits between 2015 and 2019, plus changes between 2019 and 2024 “that raised average incomes for many low-income working households, but not by enough to offset previous cuts”.
All in all, the policy decisions have led to non-pensioners being on average £1,400 per year worse off by 2024/25 compared to 2010/11, with pensioners over £900 better.
Recent personal tax policy changes counter the balance
The foundation noted that recent tax policy has favoured working-age households, which has “smoothed out the age profile of income gains” since 2010.
The 2010s were characterised by changes in tax-free personal allowances that hit older age groups “slightly harder”. Between 2010/11 and 2019/20, the tax-free personal allowance rose from £6,475 to £12,750, boosting the income of (tax-paying) working-age adults. But, since 2019/20, this has been partially offset by the freezing of the personal allowance, leading to a real-terms decline in its value by £2,800 between 2019/20 and 2024/25, leaving it up by over £2,900 between 2010/11 and 2024/25.
More recently, there have been several cuts to National Insurance, from 13.5% in September 2022 to 8% in April 2024.
“Given that NI does not apply to unearned income, nor to the earnings of people over the state pension age, these tax cuts benefitted workers under the state pension age but were worth nothing directly to pensioners”, it said.
It added that the impact of all personal tax policy changes since 2010 has been to boost the incomes of non-pensioners by around £2,200 on average, whereas pensioners have seen an average increase of less than £130.
However, turning to working-age households in receipt of benefits where no-one works, these households are £2,200 per year worse off on average due to benefit changes since 2010.
But the foundation noted that these households will have also gained from the expansion of free childcare over the 2010s, which involved extending coverage to all three-year-olds as well as increasing provision to 30 hours per week for working families for 38 weeks of the year. And, as recently as April 2024, 15 hours of free childcare was also provided to families with two-year-olds.
Yet, “it is clear that households with children have been left worse off by tax and benefit changes made since 2010,” it added.
Conservative and Labour manifesto pledges
The think tank said that, looking ahead, both parties are “implicitly committed” to plans for tax and benefit policies that favour older households.
Both include pre-planned tax rises and social security changes that “diverge from the standard practice of uplifting thresholds and entitlements in line with inflation”.
This includes an additional three years of freezes on the main income tax and National Insurance thresholds to raise £8.7bn per year and would mean pensioner households would be around £210 per year worse off on average in 2028/29, while non-pensioner households would be £360 per year worse off (in 2024/25 prices).
Other policies include freezing the Local Housing Allowance and keeping the benefit cap frozen, as well as keeping the two-child limit, which will impact more families over time as it applies to children born after April 2017.
Elsewhere, it said that retaining the triple lock is expected to boost pensioners’ incomes by an average of £360 per year in 2028/29, as the state pension is adjusted for inflation only.
The report concluded: “As it stands, both main parties’ commitment to existing fiscal plans implies the continuation of benefit policies that risk entrenching the current imbalance between pensioners and non-pensioners, particularly non-pensioner households with children. To counteract this, the Conservative Party has pledged another tax cut for working-age people (via NI). But at the same time, it has also cut Income Tax for pensioners and paid for all this primarily through working-age benefit cuts.
“Both main parties have made pledges in areas such as apprenticeships, housing and (for Labour) the minimum wage and labour market enforcement, which are more likely to benefit younger people. Ultimately, to achieve the promise of intergenerational fairness – in which each successive cohort enjoys higher incomes than their predecessors – the UK must look beyond specific policies targeted at different age groups. Instead, the UK will need [to] grapple with its growth problem, which has resulted in two decades of stagnant pay growth and reversed generational pay progression.”
Two million pensioners in poverty
Joanna Elson, Independent Age chief executive, said while it’s good news that the average older person is now better off, “we must not forget about the dire situation for the almost two million older people living in poverty“.
Elson said: “This large group accounts for 16% of the older population. This is a major issue that continues to grow; there were 350,000 more pensioners living in poverty in 2022/23 than there were in 2012/13.
“Living in poverty can be a miserable and isolating experience. Every day we get harrowing calls from frightened people in later life that have been forced to make drastic cutbacks, from eating just one meal a day to washing less to save on water. This shouldn’t be happening in modern Britain.”
She added: “The next UK Government must make it easier for all eligible people to access support they are entitled to such as Pension Credit, Housing Benefit and Attendance Allowance. These are effective tools in reducing poverty. We also want to see all the parties agree on the level of income needed to avoid financial hardship in later life and ensure every older person receives this.”
