Chris Read: Paying it forward

Chris Read looks at intergenerational wealth transfer and the concept of redressing the wrongs of the past for future generations

Much has been written on intergenerational transfer of wealth. It is a key focus for financial advice and consequently a key opportunity for present and future value across the industry.

The Resolution Foundation in 2017 wrote extensively on the intergenerational contract:  the principle that different generations provide support to each other across the different stages of their lives.

The observations that the Resolution Foundation made was that the younger generational cohorts will fare worse in their lives than older cohorts. This represents a reversal of the cohort-on-cohort wealth progression and a threat to the intergenerational contract.

It’s not that there is less intergenerational wealth being transferred, quite the opposite. According to the King’s Court Trust, over the next 25 years, £5.5trn is expected to pass through the generations. An average value of inheritance will grow from £62,000 to £91,000 over the next five years and that £115bn will be transferred.

Of the assets transferred, property accounts for 70%. So, clearly, there is much to be transferred from older to younger generations. If you are a Millennial (those born between 1981-96), Gen Z (those born between 1997 and 2012) or Gen Alpha (those born between 2010s and mid 2020s) what is there not to like about that?

These cohorts, especially those in the early years of their working lives, are angry. Not only has job security eroded over the past two decades but access to the property ladder has been put out of reach for many. Property valuations have been driven up by asset-rich older cohorts. Never has the generational gap been so antagonistic and combative as it is today. 

I remember when I was in my early twenties, those in control and running the world were busy transitioning economies from post-war economies to economies built around global trade, telecommunications and the emerging power of computing.  Glasnost heralded the fall of the Berlin Wall. Times were good, wealth was amassing and the property boom was well on its way.

Today the same group of twenty-somethings are more disconnected and divided than ever before. Resentful and aggrieved, they are the generation that feel deceived that their futures have been compromised by generations before them. Brexit, driven by older voters, stripping future opportunity from their working lives, further fuels this animosity that has no prospect of waning anytime soon. 

This is the generation that will be cleaning up the environment once the Baby Boomers are gone. To top it all, they were the last to be protected from Covid-19 and will be paying the costs of recovering from it again. In a recent BBC report promises that taxpayers will be paying the costs of living through the pandemic for decades to come. The same report goes on to state that the estimated cost of the government’s Covid measures having already hit £372bn and are still climbing.

With UK government debt now over £2.2trn or about 99.7% of GDP, a rate not seen since the early 1960s, is it not time to acknowledge how and who will be paying for this eyewatering situation?

Right now, the burden looks to be resting squarely on Millennials’, Gen Zs’, and Gen Alphas’ shoulders. Is there not an argument to harness the growth of intergeneration wealth transfer over the forthcoming years to help moderate the impact of this debt mountain? By doing so, would the balance not be redressed by laying the bill at the feet of the generations that are more responsible for it?

It would be too easy to raise taxes. But challenging times call for more innovative ideas which encourage behaviour change faster and in a less punitive manner. What about the Baby Boomers being offered a sovereign investment bond which could grow free of capital gains tax and offer to pay out dividends to your beneficiaries – the next generation? I’d call this a Covid Relief Bond.

It could be linked to ESG investments by the government to make it work for the planet as well as the next generation. We need to keep the new ideas flowing as we embrace this enormous challenge.

Chris Read is group CEO at Dunstan Thomas