Wednesday, April 16, 2008

Pensions and Inheritence Tax

I've just been (half) listening to an argument on Radio 5 Live's Wake Up To Money in which life expectancy and pensions were discussed. It seems that anyone over the age of 50 (?) now has a 50% chance of living to the age of 90. This is good news for those who do, especially if they are reasonably fit and healthy for most of the time.

The problem seems to be that very few people have the pension savings to allow them to fund living that long and they will become an increasing burden on the state, by which they mean the rest of the working population. This problem is exacerbated by the change in demography that means in a couple of years time there will be more pensioners than children.

Despite exhortations from our politicians with their gold plated politicians to save more the situation is getting worse with fewer people planning for their retirement as this article notes:

Other figures published by the ONS show that active membership of private pension schemes has continued to decline among men, but fell at a much slower rate among women.

From 1999-2000 to 2005-06, the proportion of working age men who were members of any scheme fell from 49% to 43% at just 7.6 million.

Although 6.2 million women were members, they represented 37% of working age women, down from 38% six years earlier.

There are many reasons why people aren't planning adequately for the retirement but I reckon there are 2 key ones:

Moral Hazard Why should people save if they know the state will bail them out? Whilst the state pension may be small there are means tested benefits that mean pensioners aren't destitute. Now this may not be much when you get there there but for younger people there is a belief that the state will provide. Why should someone forgo expensive holidays, cars, nice house, a good pissup every weekend and all the other trappings of consumer life if the Government will bail them out anyway? Indeed it makes those who do forgo these experiences seem pretty stupid. Which leads quite nicely to the second:

Inheritance Tax Who know how long we need to save for? So if we do save what happens to our money if we die early? Well as we all know the State thinks it owns a huge part of it and will help itself to what it likes. Over the years they have helped themselves to ever increasing proportions of that money rather than allow us to pass it on to our children.

Yes I know this is a very complicated subject and I could be writing all day, but unless we address these 2 problems there is no way that we will be able to get more people saving adequate amounts for their retirement.


Mark Wadsworth said...

I just posted on moral hazard, as it happens. Solution is easy - flat rate non-means tested Citizen's Pension. That gets rid of moral hazard and would be a massive simplification meaning that tens of thousands of civil servants can be chucked out.

The Great Simpleton said...


If I thought that CBI would be the end of it I might agree. The problem would come with politicians who wouldn't leav it alone and would want to "help" the ulnerable and chiiildreen with extra money, and the whole cyste starts again. After all, which politician is going to stand by while the Sun/Mirror/beeb show pictures of them starving on the street

Mark Wadsworth said...

Let's restrict this to Citizen's Pension for now. All you do is scrap BSP, SERPS, free TV licence, winter fuel etc. and pay everybody over 65 (or whatever) the Pensions Credit Rate (or whatever) subject to having lived in the UK for however many years.