Pensioners should pay more tax, argues Fabian Society
- 22 April 2013
- From the section Education & Family
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".
"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".
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.
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."