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 1001.

    Property Tax does make sense..

  • rate this

    Comment number 1000.

    Most pensioners aren't looking for the state to support them. After all, a state pension of just under £6K doesn't go very far.
    In this day and age, your company pension funds are invested and when you retire you withdraw your pension pot and use it to buy an annuity which can't be changed and is the main reason why people today don't want to retire.

  • rate this

    Comment number 999.

    I wonder instead of mugging the O.A.P.s if the Socialists would not rather be supporting some radical idea like confiscation of cash assets from everyone with over 1 Million pounds in the bank. I mean a million is not bad is it ? or is it the case that this would hit hard a lot of Socialists ? strange is it not that many of these Socialists look to rob the O.A.P.s but not the likes of Kinnock ?

  • rate this

    Comment number 998.

    Why dont they tax the people who inherit millions upon millions without doing any work instead of asking pensioners some of whom have worked so hard to have a better retirement!

    1. They do.
    2. There aren't enough of them to make much difference.

  • rate this

    Comment number 997.

    Yet another 'Think Tank' coming out with ever more bright ideas which generate more heat than light. A govt which SAYS its cutting tax for low earners,& @ the same time is RESTRICTING the Age Allowance for pensioners born after April 1948 to the standard amount,therefore CUTTING tax thresholds for many pensioners already.As with benefit claimants so with pensioners.Hit the soft targets1st eh?

  • rate this

    Comment number 996.

    @661 BLACK_PEARL
    Single mothers costing the country more than the Royal Navy?

    Care to back that up? That's a load of.. well, lets just say "my posterior
    I would love to, but would probably get someone into deep water if you excuse the pun
    Did once find a link to the Billions annual cost figure that was10 yrs old. After I was told this.
    Busy working so no time just now

  • rate this

    Comment number 995.

    The Government want to hit pensioners again, whilst there are still too many civil servants being paid from the public purse, far too much for what they really do. This Government is crossing the line into shear and utter stupidity

  • rate this

    Comment number 994.

    Pensioners have paid tax all their working lives and now they want to tax them more? How about cutting all the benefits and free housing to illegal immigrants and Qatada and the like to get the expenditure down along with foreign aid instead.

  • rate this

    Comment number 993.

    A higher tax allowance and free bus passes, just for the elderly, is 'age discrimination in the modern world, pain and simple. A legal challenge must be made at the poohro court of ridiculous rights to stamp out this injustice!!

  • rate this

    Comment number 992.

    Well, I guess we'll have to agree to disagree.

    The problem, I feel, is that government privatises a lot of things but don't reduce your tax burden accordingly. So, in effect, you end up paying twice! Think of a struggling parent trying to pay for their kid's private tuition, and paying again for a public school they don't use. Taxes kill em, and keep the poor poor.

  • rate this

    Comment number 991.

    Why on earth should pensioners pay more tax? They've paid tax all their working life! And they get taxed on already taxed money. The poor people, the childless single or married people are the ones who pay for everything in this country. The rich have the means to escape paying tax. The thought of me being a pensioner one day in this country is extremely frightening.

  • rate this

    Comment number 990.

    So the Fabian Society is now turning to the Bank of Granddad and Grandma to reduce the deficit.

    The banks did a runner with our money and the so-called socialist so-called think tank decides money should be taken from people who have paid tax all their working lives instead of from the true culprits.

    Surprise, surprise.

  • rate this

    Comment number 989.

    #902. IR35_SURVIVOR

    Only solution is back to the 1800's or 1930's i guess..... the good old days :)

  • rate this

    Comment number 988.

    #980 to make your statistic make sense you would have:
    (a) govt policy to make us all eat more chickens;
    (b) govt policy to ensure that production of chickens falls as demand for chicken rises.
    (c) ban people from eating any other meat other than chickens.

    As that is what has happened in the housing market

  • rate this

    Comment number 987.

    also the reason not to vote Tory if you're poor. They tax you to give the rich tax breaks then lie about the level they tax.
    Politicians hey?

    Agreed - they are all at making us pay in tax for the greed, incompetence and gross mis-management of their kind. You or I would be out of a job and fighting to keep our homes....but not them - their lives are only ever enhanced

  • rate this

    Comment number 986.

    Over time, we need to shift to being a high-skilled, high-wage economy, probably with a much higher retirement age than we currently have.

    Allow people to build up their savings, stay earning and paying taxes, rather than spending many, many decades as pensioners. Unfortunately, even many at work are benefits dependent and average salaries have been stagnant for many years.

  • rate this

    Comment number 985.

    Its worth noting the suggestion is wealthy pensioners pay tax at the same rate as younger earners, most pensioners will barely get above the tax threshold, anyone young or old with more than enough to live on should pay tax. If they don't need it wealthy pensioners should not claim fuel allowance or any other universal benefit and I doubt very much they've bothered to get a bus pass.

  • rate this

    Comment number 984.

    A lot of people seem to think pensioners don't pay tax! The state pension is taxable, unlike some other benefits, so any other pension you receive attracts income tax as soon as the combined total reaches the level of the tax allowance and if your income reaches a certain level the extra age related tax allowance is phased out, i.e. well off pensioners are treated like other tax payers.

  • rate this

    Comment number 983.

    Perhaps the Fabian Society would like pensioners to drop dead upon retirement. As a pensioner who tried to save a little money for retirement I have seen my savings dwindle because of the appalling interest rates created by a society who lived beyond their means and now pensioners are being asked to pay more which was also due to a previous Tory government who relaxed banking regulations.

  • rate this

    Comment number 982.

    Mmm private roads, especially tolled ones, haven't exactly been a roaring success story in the UK. Some of those roads 'funded' by business, usually to gain planning approval, often never matierialise or and handed over for public maintenance immediately on completion.
    Yes, there's inefficiency in some public services, but that's a reason for reform not wholesale privatisation.


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