The Generational Wealth Challenge

In 2017, The Telegraph published a startling revelation: people in their 20s and 30s are the first generation in meaningful history to be less affluent than their parents. This isn’t just about lifestyle choices or economic cycles – it represents a fundamental shift in how wealth is accumulated and transferred between generations.  

When combined with longer lifespans and changing pension provision, it creates what we call the H.E.P. challenge: Housing, Education, and Pensions. But there’s a fourth letter that offers hope: ‘L’ for Legacy. Understanding how these forces interact is crucial for anyone trying to navigate modern financial planning. 

Housing: The Doubling of Real Costs 

The numbers tell a stark story about housing affordability: 

• 2002 vs 2023: The Housing Reality 

• Q1 2002: Average house price £84,620, average earnings £18,668 (4.5x income) 

• Q2 2023: Average house price £287,546, average earnings £33,402 (8.6x income) 

In real terms, the cost of housing has virtually doubled in just 20 years. The average age of first-time buyers has risen to 34, with an average deposit requirement of £59,000 – money that previous generations could have invested in pensions or other long-term savings. 

Education: The New Financial Burden 

Higher education financing represents another unprecedented challenge. The House of Commons Library [link] reports that £20 billion annually is lent to 1.5 million students, with average loan amounts of £45,600. While many of these loans won’t be repaid in full due to the income-threshold system, they represent an additional financial burden that didn’t exist before 1991. For graduates, student loan repayments effectively operate as an additional tax, reducing the income available for housing deposits, pension contributions, and other financial goals. 

Pensions: The Shifted Burden 

Previous generations benefited from what we might call “accidental pensions.” Born around 1940, they typically built long service with large employers providing final salary schemes where membership was often compulsory. Combined with the state pension, they found themselves with good retirement income thanks to decisions made by employers and government. 

Today’s workers face the opposite situation: defined contribution schemes where they bear all the investment risk, lower employer contribution rates, and the need to make complex financial decisions without adequate preparation or support. 

The Changing Ratio of Workers to Retirees 

A UN study in 2010 [link] revealed the scale of the demographic challenge ahead. Across Japan, the US, Europe, China, and India, the average ratio of workers to retirees in 1990 was just under six to one. By 2050, this is predicted to fall to just 1.5 workers for every retired person. This demographic shift has profound implications: 

• Fewer workers to support state pension systems 

• Higher tax burdens on working populations 

• Reduced economic growth as populations age 

• Increased healthcare and social care costs 

The State Pension Challenge 

In the UK, the cost of providing pensions is expected to rise to £250 billion by 2050, compared to the current level of £112 billion. This increase, combined with healthcare and social care pressures, led the Office for Budget Responsibility to warn in July 2023 [link] that UK national debt could rise to 300% of GDP by 2070, up from the current 100%. 

The Institute for Fiscal Studies [link] projects that current record levels of UK taxation will need to stay permanently high. They note that the government will collect upwards of £100 billion more in tax compared to pre-2019 levels, reflecting not just pandemic costs but fundamental pressures from the UK’s ageing population and healthcare demands. 

Celebrating Success, Facing Consequences 

Increased longevity represents one of humanity’s greatest achievements. The average person born today can expect to live between 87 and 90 years, compared to 46.4 years for women and 41.4 years for men born in 1871. 

This remarkable improvement stems from better healthcare and reduced conflict – outcomes we rightly celebrate. However, the financial implications of longer lifespans are rarely connected to discussions about healthcare costs, pensions, or national debt. 

When employers began offering defined benefit pensions, they often expected scheme surpluses because many employees weren’t expected to live long enough to draw significant benefits. As longevity improved, what seemed like financially sound arrangements became massive liabilities. 

The Planning Challenge 

The idea of planning for a long life is evolutionarily new. As a species, we’ve existed for approximately 300,000 years, but it’s only in the last 0.1% of that time that old age has become a realistic prospect for most people. 

Our ancestors’ biggest concerns were food, shelter, and avoiding immediate threats. This short-term outlook was appropriate for their circumstances but remains dominant today, even though our situation has fundamentally changed. People still don’t naturally engage with their long-term financial future. 

The World Economic Forum Warning 

In 2017, the World Economic Forum [link] issued a stark warning about the scale of the challenge: 

 “The anticipated increase in longevity and resulting ageing populations is the financial equivalent of climate change. We must address it now or accept its adverse consequences will haunt future generations, putting an impossible strain on our children and grandchildren.” 

This isn’t hyperbole – it’s a recognition that the financial implications of demographic change require immediate action to prevent future crisis. 

The L-Factor: Legacy as a Solution 

Despite these challenges, there is reason for optimism. Research from Kings Court Trust and the Centre for Economic and Business Research [link], quoted in the Financial Times in January 2019, revealed that intergenerational financial transfers worth over £5.5 trillion will occur in the UK over the next 30 years. 

This represents the largest transfer of wealth between generations in history, as the post-war generation – who benefited from house price appreciation, final salary pensions, and free higher education – pass their accumulated assets to their children and grandchildren. 

Evidence of Early Transfers 

This wealth transfer is already beginning. Legal and General [link] research found that 47% of all house purchases in 2023 by under-55s received financial assistance from family members. The “Bank of Family” contributed £8.1 billion toward 314,400 house purchases. 

This trend helps explain how younger people are managing to buy homes despite the seemingly impossible affordability ratios. However, it also highlights growing inequality between those with family wealth and those without. 

The Reluctance to Discuss Money 

Despite the scale of intergenerational wealth transfer, families remain reluctant to discuss financial matters. Research by Lloyds Bank [link] in 2019 found that over 50% of UK families were reluctant to talk about money, compared to: 

• 42% unwilling to discuss sex 

• 26% avoiding religion 

• 14% reluctant to discuss politics 

Lloyds called their campaign addressing this “the M-Word” – recognising money as the last taboo subject in many families. 

Tax and Planning Implications 

The reluctance to discuss money becomes problematic when combined with complex inheritance tax rules and the need for effective wealth transfer planning. Without proper discussion and professional advice, families may face unnecessary tax liabilities or inefficient transfer arrangements. 

Financial Wellbeing Programmes 

Forward-thinking employers are beginning to recognise that financial stress affects workplace productivity and employee wellbeing. Health and Safety Executive [link HSE 2021/22 work related ill health and injury statistics report] data shows 17 million working days lost to stress, depression, and anxiety, much of it financially driven. 

 Progressive employers are implementing: 

• Financial education programmes covering pensions, budgeting, and debt management 

• Enhanced pension provision beyond minimum auto-enrolment requirements 

• Salary sacrifice schemes to maximise pension contributions 

• Employee assistance programmes providing confidential financial guidance 

The Business Case 

Supporting employee financial wellbeing isn’t just altruistic – it makes business sense: 

• Reduced absenteeism through lower financial stress 

• Improved retention among financially secure employees 

• Enhanced recruitment through superior benefits packages 

• Increased productivity from less distracted workforce 

The Need for System Reform 

The scale of the generational wealth challenge suggests that incremental reforms won’t be sufficient. 

Potential areas for policy intervention include: 

• Increased auto-enrolment contributions to more realistic levels 

• Housing policy reforms to improve affordability for younger buyers 

• Student finance restructuring to reduce the graduate tax burden 

• Inheritance tax reform to facilitate efficient wealth transfer 

The Role of Financial Education 

The education system’s failure to prepare people for financial decision-making becomes more problematic as responsibility shifts from employers and government to individuals. Comprehensive financial education could help people: 

• Understand compound interest and long-term saving benefits 

• Make informed pension decisions rather than defaulting to minimum contributions 

• Plan for major life events like house purchases and retirement 

• Navigate complex financial products without falling victim to poor advice 

For Employees 

Despite systemic challenges, individuals can take steps to improve their financial position: 

1. Maximise pension contributions through salary sacrifice and additional voluntary contributions 

1. Understand family wealth and engage in conversations about intergenerational planning 

1. Seek professional advice for complex financial decisions 

1. Start early to benefit from compound growth over longer periods 

1. Stay informed about policy changes affecting long-term financial planning 

 For Employers 

 Employers can support their workforce through: 

1. Enhanced pension provision beyond minimum requirements 

1. Financial education programmes delivered through workplace channels 

1. Flexible benefits allowing employees to optimise their personal situations 

1. Regular scheme reviews to ensure competitive and effective provision 

1. Professional support for employees facing complex financial decisions 

For Policymakers 

The scale of the challenge requires coordinated policy response: 

1. Realistic contribution targets that reflect actual retirement income needs 

1. Housing affordability measures to reduce competing demands on young workers’ income 

1. Education system reform to include comprehensive financial literacy 

1. Tax system optimisation to support efficient intergenerational wealth transfer 

1. State pension sustainability measures to maintain public confidence 

From Challenge to Opportunity 

The generational wealth challenge is real and unprecedented. Young workers face housing costs their parents never experienced, education debts that didn’t exist a generation ago, and pension responsibilities their grandparents never had to navigate. 

However, within this challenge lies opportunity. The largest intergenerational wealth transfer in history is beginning, offering the potential to reset financial circumstances for millions of families. The key is ensuring this wealth is transferred efficiently and used effectively to secure long-term financial security. 

For employees, this means engaging with uncomfortable financial realities and making informed decisions about pensions, housing, and long-term planning. For employers, it means recognising that employee financial wellbeing directly impacts business performance. For policymakers, it means acknowledging that current systems aren’t adequate for current challenges. 

The alternative – ignoring these trends until they become crises – would indeed put “an impossible strain on our children and grandchildren,” as the World Economic Forum warned. But with proper planning, communication, and coordinated action, we can navigate this transition successfully. 

The question isn’t whether change is needed, but whether we’ll act proactively or wait for circumstances to force change upon us. The choice, for now, remains ours. 

At WPD, we help employers understand and respond to the generational wealth challenge. Through enhanced pension provision, financial education programmes, and strategic planning support, we enable businesses to support their workforce through these unprecedented financial pressures. 

Contact us to discuss how your organisation can be part of the solution.