As the cost of looking after an ageing population soars, we need to get more money from the industrious middle-aged.
Pensioners are getting richer — or so says a new report. Should we cheer? Or boo? Amid the conclusions of a powerful study published this week was a finding that, its authors realised, was dangerously newsworthy. The Resolution Foundation, the sobersided think tank, set it about with caveats but the news is still big. “From 2011-12 onwards, the living standards of the typical pensioner (after housing costs) have actually been higher than those of the typical non-pensioner.”
This is quietly sensational. Pensioners have overtaken workers, and “typical pensioner households now have incomes that are £20 a week higher than their working-age counterparts”.
Thosses in their forties and fifies could pay more taxes too
The foundation’s David Willetts (universities and science minister in the coalition) was first to comment. He wrote a groundbreaking book in 2010, The Pinch. While more scholarly than such crude summaries as “my generation is screwing yours”, this fuelled a debate on so-called intergenerational wars. Now (says Willetts) the next government should reconsider the vote-winning “triple-lock” Tory promise: that pensions will be increased annually by either 2.5 per cent, or the increase in the consumer price index, or the increase in average earnings — whichever is the greatest. So the state pension continues rising until somebody blows the whistle.
The Commons work and pensions select committee wants to blow the whistle soon. But Sir Steve Webb, the Lib Dem former pensions minister, thinks that more work needs to be done first in raising pensions. Who’s right?
I’m with Webb. That pensioners generally are getting better off should not mask the enormous range between the richest and the poorest. The poorest may no longer be quite at the bottom of the heap, but anyone who depends solely or mainly on the basic state pension is poor indeed.
Try living on £119.30 a week (even the £155.60 that some, more recent, pensioners are entitled to) — and then tell me that this group is leeching off the younger generation. There is something particularly wretched about being poor when you’re too old to work. When we’re younger and employed we’re aiming for better things and can put up with temporary hardship. But when you can no longer work then that’s as good as it’s going to get for the rest of your life. To see that this group is at least comfortable is the civilised response of a mature society to the needs of its seniors.
So let the rules ratchet up the basic state pension a bit longer, until you, Times reader, or I, can at least imagine surviving on it.
But the poorest pensioners are not all, or even most, of those of pensionable age. Millions of us are in that larger group, and not poor at all. We (many of us still working) help push up those headline averages in the Resolution Foundation report, yet we too are entitled to the triple-lock guarantee, and the many other benefits that are triggered at various age thresholds. Free prescriptions, public transport, winter fuel allowances, TV licences (for the oldest) . . . why should we get these?
It will never seem fair, however much desk-wallahs mutter about the technical difficulties of “means-testing” benefits. Besides, there’s a solution. Don’t means-test — tax. The state pension is already taxable. Perks have a monetary value too. Where they’re tricky to compute because their value depends on how much use is made of them, why not ascribe a notional value based on average take-up — and tax that? Pensioners who don’t have much call (for instance) for free travel or NHS prescriptions needn’t sign up for the benefit if they want to avoid the tax. In this way the distribution of pensioner perks will be as “progressive” as the income tax levied on them. Justice will be seen to be done.
But the yield for the chancellor will be modest. If we’re to keep the triple lock and pay more (as, kicking and screaming, government is going to be forced to do) towards social care for an ageing population then new revenue must be found. Once the Brexit froth has subsided the story of the next decade will be that the government is fast running out of money.
A civilised society makes sure its seniors are at least comfortable
Ideas do the rounds about new, earmarked “contributions” along the lines of national insurance contribution for social care or even the whole NHS. But this infantilises us because, in the end, as demand fluctuates, the earmarking (or “hypothecation”) becomes a fiction, and everything goes into the same pot. Be honest: it’s all just income tax.
Who then should pay it?
Here’s a thought experiment. Forget what age you are now. Hold in your mind a picture of yourself over your whole life: stretching from cradle to grave, lived as the average 21st-century life will be lived.
As an economic being you’re a dependent human animal for the first 20 years: costing more than you contribute. The next segment of your life is productive: from mid-twenties to mid-sixties you give more than you take.
The final segment is (you hope) fairly long. From maybe your mid-sixties to your mid-eighties or nineties you take more than you give: for two or three decades, and lengthening with every medical advance.
Now consider this three-stage life not as your own but as the life of Everyman and Everywoman. The middle bit shows a net profit, the stages at each end a loss. So it’s from that middle stage that the first and the last must be funded.
But for Everyperson that middle stage of life is not a flat fiscal trudge. At first it’s an uphill struggle. You’re building your nest, your family, your world. Your income may rise but the bills come in big and fast and you feel forever hard up. Then, some time between 40 and 50, the gradient slackens. Children fly the nest; the mortgage payment is no longer a monthly crisis. Money worries ease off a bit. From now until you retire you’ve more financial headroom.
Isn’t this the group from whom we need to raise more revenue? So why is our income taxation age blind: “progressive” as to the sums earned but not as to the sums needed? Shouldn’t we step up the tax demand as middle age is reached? That is what — in that cradle-to-grave picture we started with — you would do over your own life: you’d cut yourself some slack as a young adult but tighten the screws as the children leave home and the new conservatory beckons.
If we are to protect the old, shouldn’t we ask those waiting to be old for extra help?