Bold action is needed from the government and financial institutions to ensure that wealth inequality between older and younger generations does not get worse, a report from the International Longevity Centre UK (ILC), in partnership with M&G, has argued.

It warned that the ‘intergenerational contract’ was under mounting pressure due to demographic change, low economic growth, and rising inequality.

The report highlighted that older people’s wealth grew five time more over the past decade than younger people’s.

While UK household wealth has doubled relative to incomes over the past 20 years, older people had benefitted “disproportionately”.

Median wealth for someone in their late 60s had risen by 46 per cent between 2010/11 and 2019/20, but only by 9 per cent for someone in their late 30s.

Furthermore, the share of wealth held by under-40s had “plummeted” from 7.5 per cent in 2010 to 4 per cent.

The report noted that while the wealth of older households was increasing, seven in 10 adults do not receive any financial support from their families.

These issues could be exacerbated by the expectation that there will be less government support for future older generations, an ageing population, and the switch from defined benefit to defined contribution pensions.

The ILC and M&G outlined three recommendations for policymakers, working alongside the financial services industry, to strengthen the UK’s intergenerational contract.

It called for savings products to be automatically provided from birth and the inclusion of ‘specific nudges’ that could encourage family and friends to establish regular contributions, alongside providing greater education about available assets to enhance returns.

Furthermore, the report encouraged the development and improvement of investment vehicles that pool risks across generations, and for auto-enrolment pension contributions to be increased to 12 per cent for workplace schemes.

"We have managed to get ourselves into a complete pickle,” stated ILC chief executive, David Sinclair.

“Wealth has become increasingly concentrated among older generations, while younger people are struggling to get ahead. If we don’t act now, these inequalities will only worsen, leaving younger generations facing even greater challenges.

“The intergenerational contract is under serious strain, and we need bold action from both the government and financial institutions to fix this mess.

“With the government’s review on pensions adequacy for current and future generations put on ice, we need government and industry to work together to truly look to the long term.

“The upcoming Spending Review is an opportunity for the government to work with financial institutions to redress the growing wealth gap between young and old.”

M&G CEO life insurance, Clive Bolton, added: “For over 70 years the intergenerational contract has been an integral part of British society. It matters because the contribution we make is a downpayment on the future support we receive in old age, as well as providing the support we all need in the early stages of our life.

“It’s a critical part of our daily lives – it supports our welfare system, health service, schools and the investment which powers the critical infrastructure that communities all use and rely on.

“Pensions and investments have a critical role to play to ensure the intergenerational contract continues to support society.

“In the face of changing demographic trends, the challenge now is to put in place new support for the next generation of savers so the generational bond remains strong. By giving people the confidence to make informed financial choices we can ensure the intergenerational contract evolves and continues to support individuals and society.”

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