Pensioners should pay more tax, argues Fabian Society

Pensioners on bikes Most older people are neither wealthy baby-boomers nor pensioners on the breadline, the report says

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Better-off older people should pay tax at the same rate as younger people on similar incomes, a think tank argues.

The report from the Fabian Society argues that as older people are no longer always poor they should "share the pain of deficit reduction".

"All policies that appear to give special advantages to older people as a category should be reviewed," it says.

Age UK said financial options for elderly people were often very limited.

Researchers for the left-of-centre Fabian Society analysed data from the English Longitudinal Study of Ageing (Elsa).

The paper, part of a series produced for the Hanover housing charity, suggests that the majority of older people are neither wealthy baby-boomers with "a surfeit of wealth and leisure" nor "pensioners on the breadline facing poverty, isolation and ill health".

'Profound implications'

"The truth is that the majority of older people today are somewhere in between, neither rich nor poor, and the middle is expanding as a result of recent successes in reducing pensioner poverty," writes author Andrew Harrop.

"Of course this is something to welcome and celebrate, as part of the steady decline of pensioner poverty, but it has profound implications," he argues.

The paper says that "older people catching up with everyone else was not problematic while middle incomes were rising across the board.

"Perhaps it is more so today with growth in median earnings at a standstill."

Mr Harrop cites figures from 2010-11 that suggest that the real incomes of the middle fifth of all households were no greater than in 2003-04 "but middle incomes for retired households were 13% higher".

He added: "Since the financial crisis this disparity has become even more stark: real middle incomes have fallen by 5% overall, but they have risen 5% for retired households."

The report says that when it comes to disposable incomes after housing costs, pensioner couples are now in the top half of UK income distribution because 80% of them are homeowners and most are no longer paying rent or mortgages.

But, Mr Harrop argues, rising house prices have meant a fall in the share of people aged under 45 who are owner occupiers, "with the median 25 to 34-year-old now renting rather owning their home".

Start Quote

It can be difficult for older people to change their financial plans as their options are likely to be very limited”

End Quote Michelle Mitchell Age UK

When it comes to taxation, the paper highlights a "really significant intergenerational unfairness", with retired middle-income households paying 27% of their gross income in tax, compared with 33% for non-retired households with the same income.

The paper concludes that "in financial terms alone, older people are no longer special", and it calls on the government to assess the evidence for existing rules on social security, taxation and the design of services.

The paper says moves to equalise the tax system would have to be carried out more slowly to avoid a sudden fall in living standards.

'Safety net'

In the meantime, it suggests the government should consider taking national insurance from earnings after state pension age and ending tax-free lump sums on private pensions.

It also argues for more taxes on property, such as a land value tax or a reformed council tax, to suppress rises in house prices.

On top of this, the paper suggests scrapping current rules that guarantee that the state pension "will rise annually by an average of 0.26% more than earnings" and restricting universal benefits to pensioners, such as winter fuel allowance, free TV licences and free bus travel.

Michelle Mitchell, of Age UK, said: "The Fabian Society is right to point out that there has been significant progress in tackling pensioner poverty in recent years. But there are still 1.7 million pensioners living in poverty today, while a further 1.1m have incomes only just above the poverty line.

"It can be difficult for older people to change their financial plans as their options are likely to be very limited. They have also contributed national insurance payments throughout their working lives to receive in return a state pension that ensures a financial safety net but little more."

A Treasury spokesperson said the government was committed to ensuring that older people are able to live with the dignity and respect they deserve and the basic state pension is the foundation of state support for older people.

"In difficult economic times, we have protected the benefits of those who have little means to increase their income, for instance pensioners."

A spokesman for the Department for Communities and Local Government said: "At a time when people are fighting for every pound in their pocket a tax hike is the last thing they need. The government has repeatedly made clear it will not be introducing any changes to council tax banding."


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  • rate this

    Comment number 321.

    My in-laws are in their early 80s. Retired teacher/ civil servant. Nice mortgage-free bungalow. New-ish car. 1-2 holidays per year etc. They raised a family and have modest public sector pensions. They are enjoying the twilight of their lives. What they have the earned through their own efforts. They are "comfortable" but not what I'd call "wealthy". Decent people like them should not be vilified!

  • rate this

    Comment number 320.

    NOT a wealthy baby boomer. When I married in 1969 I was told to pay a married women's NI, no-one told me what affect they would have on my pension. I then did the 'right' thing stayed at home looked after children. As a result my pension is £65.91 PER WEEK! I have some savings left to me by Dad so cannot claim any benefits. Cannot use my tax allowance to offset tax my husband pays on his pension

  • rate this

    Comment number 319.

    I earned my pensions; twenty five years in the armed forces, and fifteen as a low-grade civil servant; forty years' service to the country.
    Plus forty four years' NI contributions. I pay basic rate tax, but there are some out there who think that I, and others in the same boat, should pay at a higher rate; shame on you.
    Pensioners vote; I can't see any political party forgetting that!

  • rate this

    Comment number 318.

    Looks like I will need to go back to work to make up the difference, which will then take a job that a young person needs. So more on youth unemployment costs.
    Surely it’s better to have the old retired than the young with no work and on the dole.

  • rate this

    Comment number 317.

    There is a major difference for people of pension age and that is that their options are extremely limited for making further income or preparing savings. They have just what they have accumulated in order to live out their lives. Having children, I have every sympathy for the younger people but they do have options. Do we want pensioners to stay in the work pool and rob the younger ones of jobs?

  • rate this

    Comment number 316.

    "38.Sue Doughcoup
    Greedy pensioners. Anyone over the age of 65 should be made to pay back all the money that was borrowed to keep them in a comfortable lifestyle."

    Are you saving to pay back all government borrowing from your lifetime when you reach 65?

    If not, why not?

  • rate this

    Comment number 315.

    The UK, NI/Tax system is 1 big Ponzi scheme.

    So yes you paid your taxes all you lives,
    No you didn't pay for yourself

    Elder generations never paid enough in to the pot & now the generations below will suffer.
    Not only that they benefited from Oil revenue/Final Salary pension/Housing Boom/Free education.
    All you have left the future generations is Trillions of Debt

  • rate this

    Comment number 314.


    They do tax dead people I had to pay tax for my mother after she had died

  • rate this

    Comment number 313.

    I like the idea of...
    A left-wing group suggesting a policy which would affect a group of traditional Tory voters hardest.
    Just like most Tory policies steal money from groups who are more traditionally Labour supporters...

    Other than that - it is ridiculous of course. You'd think in this day and age there'd be some respite from the bite of tax - after working for a living for 40+ years.

  • rate this

    Comment number 312.

    If the rich and super-profitable companies paid THEIR taxes, this sort of debate would not be needed. The rich must be laughing into their caviar soup. The debate is always about what tax NORMAL People should or should not be paying - not about the immoral and occasionally illegal tax avoidance THEY routinely do. Time for Europe / The World to close down Tax Havens - whose idea were they !?

  • rate this

    Comment number 311.

    I have put my hand in my pocket all my working life, I've been robbed & abused by my past employers, participated in failed pension schemes, experienced unwelcome periods of unemployment. I now exist on the state pension which is topped up to a demeaning poverty level by pension credit. I didn't cause the current problems so why must I be forced to pay for them. Shame on you at the Fabian Society.

  • rate this

    Comment number 310.

    Balance is what the debate should be. Free bus passes / fuel allowance for pensioners with millions in the bank is wrong, when someone on minimum wage must fork out large amounts of their income.

    A major reason these age related benefits are still in existence is the large proportion of older people who vote - cutting benefits here is much more politically risky than for any other age group.

  • rate this

    Comment number 309.

    I am all for scrapping things such as heating allowancse & free travel for pensioners who are well off but I don't think any pensioners should be penalised tax-wise. Yes, they had things easier than us in terms of getting onto the property ladder, but many of these properties will eventually be handed down to younger generations. They already paid tax all their working lives.

  • rate this

    Comment number 308.

    By the time I reach pension age, I will have worked and paid tax for 51 years. In this time I have never had a holiday abroad, do not have SKY or a smartphone and have chosen to try to save for my retirement. Why should I be penalised for being prudent? I am already working for 6 years longer than I was supposed to - that's 6 years more tax and 6 years less pension.

    I think I've done my part!

  • rate this

    Comment number 307.

    I was told -work hard, save for a pension, and pay off my mortgage as soon as I can - which I did
    But the new message to the young, is don’t bother:- if you do we will only grab it back off you when you retire.
    Where is the incentive to plan for your retirement?
    It now seems best to spend it all while your young and let the state look after you in old age. Then we will have a pension crisis

  • rate this

    Comment number 306.

    I can see a point with this. Why are we paying a state pension to someone who has a whacking great big private pension. State pensions should be limited to anyone who receives a private pension less than the average wage i.e if your private pension is above 26k per annum then you are not entitled to a state pension. It won't effect a great deal of people but would be fairer.

  • rate this

    Comment number 305.

    #274 - pensioners don't riot but they do vote, more often than the younger generation. They represent a significant voting block and seriously annoying them could significantly dent a political party's chance of winning an election.

  • rate this

    Comment number 304.

    If an MP said He could live on £53 while in reality He lived for free in a mansion then HE would rightly be condemned as a fool

    However, if you live rent and mortgage free in a property worth 10 times the value in real terms that you paid for it. It is still acceptable to pretend you are poor.

    There are millions of poor pensioners but there are also hundreds of thousands of wealthy ones.

  • rate this

    Comment number 303.

    I wonder what the Fabian Society's, an unincorporated membership association, tax bill is each year?
    Do they attempt to minimise their tax? Why?

    If, and when, they donate, do they donate to private charity, or do they write a check to that government welfare program instead? Why?

    *Can they put their money where their mouth is, or is it easier to be charitable with the money of strangers?

  • rate this

    Comment number 302.

    I have saved all my life, paid tax at a higher rate, and never taken any money from the state. I am now a pensioner with just about enough to pay the rising cost of living each month. I have to watch my budget carefully, I cannot afford holidays abroad, or even in the UK. But I pay my own way, and hope to do so until I die. Who are these rich pensioners?


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