Magazine article Teaching Business & Economics

Economic Power: Ignore the 'Grey Pound' at Your Peril!

Magazine article Teaching Business & Economics

Economic Power: Ignore the 'Grey Pound' at Your Peril!

Article excerpt

The cost

As you can see from table 1, the biggest area of government spending per year is pensions. The proportion of total pension benefits that are attributable to the old age pension are in brackets. The existence of the 'triple lock' on the state pension is potentially another burden. This lock means that the basic state pension will rise at the rate of 1 : inflation, 2: average earnings growth, 3: minimum of 2.5%, whichever is the highest. In the words of Andrew Haldenby (director of the independent think tank Reform)

'Through no fault of their own, pensioners have received a level of support that cannot now be afforded'.

It is important to remember that pensioners are not a homogenous group and levels of wealth and income vary enormously. Current low interest rates have also meant that some pensioners have recently suffered falling real incomes (inflation adjusted) in recent years.

Opportunity Cost

The Treasury only has a certain amount of income and it must make choices in terms of who is the beneficiary of its funds. Governments are usually keen to help pensioners as they are a very important voting group in elections. This means that if pensions are to be a key spending priority then something else is likely to suffer. In recent years the under 25's seem to be facing a large burden of government spending cut backs. The Educational Maintenance Allowance (EMA) has been abolished and charges of £9,000 per year apply to many university courses. Younger citizens in the UK have seen a 6.4% fall in real spending power since the start of the credit crisis in 2008 whilst pensioner real disposable incomes have risen by 5.1 %

Potential Solutions

The issue of pensions and welfare benefits for pensioners is starting to attract some cross party consensus. In addition, the retirement age is set to rise from 65 to 66 in 2020 and to 67 in 2028. The coalition government is unwilling to make any immediate changes due to an election pledge to not cut universal pensioner benefits. Other pensioner benefits such as the Winter Fuel Allowance and free bus passes are increasingly been scrutinised. The size of the current government deficit means that this issue is unlikely to go away. It will need addressing at some stage. What cannot be denied is the spending power and growing number of pensioners. This is sometimes referred to as the 'Grey Pound'. Businesses neglect this demographic at their peril. …

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