For years, policymakers have worried about whether younger generations are saving enough for retirement. But what if the problem isn’t that young people aren’t saving enough, but they’re being asked to solve the wrong problem at the wrong time.
Today’s pension system is built around a simple proposition: defer consumption today for greater security in later life. This made sense when the biggest financial challenge facing most households was funding retirement. I’m not convinced that’s true anymore. For Generation Z, the most pressing financial challenge isn’t retirement, but getting started. Housing costs have risen far faster than earnings, deposits take years to accumulate and higher rents absorb income that previous generations could save. In addition, student debt hangs over many graduates so even relatively well-paid young workers can feel permanently stuck in a cycle of ‘almost but not quite’.
Asking a 25-year-old to prioritise their financial position at age 75 feels disconnected from reality, when many are struggling to achieve milestones their parents took for granted.
Policymakers spend little time discussing what support should look like for people in the decades between education and financial stability. Yet these years can determine everything that follows – not just financially, but for broader social outcomes, like family formation, housing demand and economic mobility. It is not just about the ability to purchase a first home, start a family, relocate for work, or take on entrepreneurial risks. It’s also the ability to build wealth rather than service debt. Get these years right and retirement outcomes often improve naturally. Home ownership, lower debt burdens and stronger lifetime earnings can compound just as powerfully as investment returns.
That is why Andy Burnham’s suggestion of making the first three years of earnings tax-free is interesting. It’s not perfect, but starts with the right question: how do we help younger people build economic resilience when they need it most.
Traditional objections are obvious: tax relief costs money, public finances are already stretched, and why should one generation receive preferential treatment? But those objections should not end the discussion. The UK has never had a problem with intervention, just with timing. We spend billions helping people once they’re in difficulty, but far less helping them avoid difficulties in the first place.
If a tax-free earnings period or an allowance helped somebody build a deposit, clear expensive debt, relocate for a better job or build a financial cushion, the long-term returns could be substantial.The cost might be immediate, and the benefit would emerge over decades, but that does not make it a bad investment.
The really interesting question is whether we should stop thinking in terms of tax cuts altogether. Suppose the tax that would otherwise have been paid wasn’t lost, but invested. Every young worker could start adulthood with a personal capital account funded by a share of forgone taxation. Those funds could be invested in productive UK assets, in a sovereign wealth-style vehicle. Or perhaps the money could be channelled into low-cost mortgage support, echoing the role local authorities once played in providing housing finance.
Here the individual benefits, the economy benefits and the state retains an investment stake rather than simply foregoing revenue.
There are obvious challenges: who owns these assets, when can they be accessed and how do we avoid creating another Isa-style alphabet soup of savings vehicles? But these are design questions not reasons to dismiss the idea. The pensions industry rightly spends a lot of time thinking about retirement adequacy. But this is not the only financial outcome that matters. A society in which young adults cannot buy homes, build families or accumulate assets is not suddenly rescued because they arrive at retirement with a larger pension pot.
Financial security is a lifelong journey, not a single destination. Perhaps the next phase of pension and savings policy should reflect that reality. The boldest ideas are often dismissed as unrealistic when they first appear, sometimes deservedly. Andy Burnham’s proposal may not be the answer. But the question behind it is exactly the right one.
If younger generations are struggling to build a life, should government do more to help them when it matters most? This debate feels long overdue.
