In the late 18th century, French philosopher Jean-Jacques Rousseau wrote about the existence of a "social contract" between citizens and the government.
A similarly unwritten set of rules exists between generations: children promise they’ll take care of their parents, because they expect to be treated the same in the future.
A new report by the Intergenerational Commission, a group of experts organised by the Resolution Foundation think tank, shows that this second contract has broken down in the UK.
For the first time in decades, young people don't expect to be richer than their parents. The analysis is spot on, and would apply to plenty of other European countries. Yet many of the proposed remedies, including a £10,000 (Dh49,697) “citizens' inheritance” for cash-strapped young adults, fall short – and could prove counterproductive.
The most striking difference setting apart British millennials from earlier cohorts is pay growth. While in the past, each generation had higher real earnings than their predecessors, people born in the 1980s haven’t enjoyed similar. They’re grappling, too, with problems that their parents never had to face, from expensive housing to uncertain pensions.
These problems are even worse in places in Europe that can’t match Britain’s healthy labour market. During the financial crisis, youth unemployment in the UK rose by less than in previous recessions. Jobs have recovered strongly since. Millennials in other countries, from Greece and Italy to France and Spain, haven’t been that lucky. According to a recent study by the International Monetary Fund, one in four youths in Southern Europe is at risk of poverty.
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Read more:
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UK’s May decries gender pay gap as ‘burning injustice’
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Unfortunately, the suggested remedies for the UK from the Intergenerational Commission are disappointing. Take, for example, that idea of giving all 25-year-olds £10,000. This subsidy could be spent only on a limited range of items, including paying back student debt, investing in training or buying a house.
For a start, such lump-sum payments would go to all younger people, regardless of income and wealth. That would be a poor use of state money, which is better targeted on the disadvantaged. Second, these subsidies typically end up increasing the price of the items they can be spent on. Universities would no doubt bump up fees for graduate courses, knowing there’s an extra £10,000 to squeeze from students.
It’s unclear too whether all the report’s objectives make sense. Nudging young people toward saving for pensions, for example by exempting employee contributions from National Insurance, is a good idea. However, the usefulness of contributing toward housing deposits is less obvious, given the daunting cost of British homes. Politicians should work instead on increasing housing supply, something the report recommends, too.
Finally, one wonders whether the report’s recommendations are ambitious enough. Asking older people to pay £2.3 billion more a year for the National Health Service by raising retiree National Insurance payments is one way to tip the scales. But the distributional implications across generations would be small.
More radical ideas exist, for example setting all tax rates depending on the age of workers, as recommended by Matthew Weinzierl, an economist at Harvard Business School. In countries with strong state pensions, governments could cut excessive benefits when they are much higher than workers’ contributions.
Ultimately, though, the state can only do so much in re-settling the intergenerational contract. Much faster economic growth than we’ve had over the past decade, accompanied by an acceleration of wages, is essential to today's young workers. To the extent that the government can help, policies need to be laser-targeted and radical.
The Intergenerational Commission could have done better on both counts.
Bloomberg
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Formula Middle East Calendar (Formula Regional and Formula 4)
Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi
Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi
Round 3: February 7-9, Dubai Autodrome – Dubai
Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi
Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia
Volvo ES90 Specs
Engine: Electric single motor (96kW), twin motor (106kW) and twin motor performance (106kW)
Power: 333hp, 449hp, 680hp
Torque: 480Nm, 670Nm, 870Nm
On sale: Later in 2025 or early 2026, depending on region
Price: Exact regional pricing TBA
THE SPECS
Engine: 6.75-litre twin-turbocharged V12 petrol engine
Power: 420kW
Torque: 780Nm
Transmission: 8-speed automatic
Price: From Dh1,350,000
On sale: Available for preorder now
The specs
Engine: 3.0-litre six-cylinder turbo
Power: 398hp from 5,250rpm
Torque: 580Nm at 1,900-4,800rpm
Transmission: Eight-speed auto
Fuel economy, combined: 6.5L/100km
On sale: December
Price: From Dh330,000 (estimate)
Tickets
Tickets start at Dh100 for adults, while children can enter free on the opening day. For more information, visit www.mubadalawtc.com.
A MINECRAFT MOVIE
Director: Jared Hess
Starring: Jack Black, Jennifer Coolidge, Jason Momoa
Rating: 3/5
