PENSIONSANDSAVINGS.COM

16 October 2017

• Don’t punish the old to help the young – panic policy changes have political dangers
• Let’s focus on policies that are fairer across all age ranges
• Better to address problems of housing or student debt directly
• And take the opportunity to prepare for social care costs that will burden younger people

 Don’t repeat Manifesto errors: Today’s newspaper reports of potential Budget measures to please younger voters seem fraught with danger. The suggestion that older people should be punished to provide more money for the young could harbour potentially lethal political damage. The Tories core voters are older people, it would be rash in the extreme to risk alienating them in the coming Budget. The lesson from the Election Manifesto is that punishing the old is not a sensible way to attract younger voters, but is a recipe for losing support of older generations.

Age is not a reliable indicator of wealth, health or ability to pay: Some young people are earning huge sums, some older people are and always have been living on extremely low incomes. Favouring one age group will potentially alienate others.  For example, specially reduced taxes for 20- or 30-somethings will feel unfair to low paid, just-about-managing families in their 40s or 50s.

Housing costs and student debts should be addressed directly: Many of the young are definitely struggling with student debts and also with housing costs (but so are older people). Just cutting taxes for particular age groups will not solve the root causes of the problems. Student debt repayment plans, lowering the 6.1% interest rate and offering shorter university courses would help.

Build more suitable new housing: Britain has not built enough new homes to support its rising population and councils lack sufficient social housing to ensure those who need such accommodation can find it. Also, many older people would like to downsize from a larger family home once children move out, but cannot find attractive new homes to move to. Encouraging more suitable age-appropriate housing, as well as ensuring older people can still access mortgages if they need to, could help housing affordability issues for younger families by increasing supply.

Incentivise institutional assets to invest in social housing: Quantitative Easing has inflated asset prices, including housing, which has also increased rents. The Budget could incentivise institutions to invest in ‘build to rent’ property, at little or no cost to the Exchequer, with time limited availability of landbanks for construction projects of this kind. This could reduce rental costs for old and young and provide better returns than currently available on other assets.

Pensions tax relief reform could offer flat-rate incentives and remove Lifetime Allowance – but now is probably not the time:  Pension incentives of tax relief are extremely complex and poorly understood. In fact, non-taxpayers can receive a 25% bonus on their pension savings, even though they pay no tax, which is a highly progressive measure to help lower earners, who are often younger. People earning over £45,000 receive more than 66% bonus on their pension contributions. This is clearly far more generous than the 25% available for lower earners, but this impact is not determined by age, it depends on your income and is based around the tax system. Reform of tax relief has usually focused on paying the same bonus to everyone, which would boost the incentives and pensions of lower and average earners rather than helping certain age groups. Such a radical change would actually help women more than men, young more than old and low earners rather than higher earners, but would not discriminate by age. A quid pro quo for reducing the taxpayer bonus to higher earners’ pensions could be to remove the illogical lifetime allowance on pension accruals which threaten to punish those whose funds perform particularly well.

Another major inter-generational issue is the crisis in social care:  Currently, younger generations face being burdened by huge costs of elderly care for babyboomers who run out of money by the time they reach their 80s. The Chancellor would be well-advised to introduce measures to encourage older people who do have money in pensions or ISAs or valuable properties, to earmark a specified sum – say £100,000 – that would cover them if they need care. This would be each individual’s maximum contribution towards their care, after which the State would pick up the costs. Incentives to help older people use their pensions or ISAs to build up a later life care fund – by allocating money that could be passed on free of inheritance tax as long as it provided a care fund for the inheritors or withdrawn from pension funds tax-free – would finally start addressing this crisis. Neither Government, nor individuals have set aside any money for care. The longer the Government delays in addressing this issue, the more older people will fail to prepare for the potential costs. Ultimately, National Insurance might help with these societal risks, but there has been a major failure of successive Governments to prepare for the well-known future burden. The costs of care should not be borne wholly by who need it, but every family should contribute to the costs and those lucky enough not to need it will help pay for those who do.

I urge the Chancellor to avoid knee-jerk panic tax changes that could alienate older voters. Let’s focus on policies that are fairer across all age ranges.