Indeed. Which is why I described this tax as the politics of envy. It's a financial irrelevance. Indeed, it's worse than that. It takes capital and turns it into current account spending. In other words, it strips capital out of the country........or, to put it much the way some misguided Lord did 30 years ago......it's selling off the family silver to fund your weekly shopping.
UK - Pensioner incomes 'outstrip those of working families'
- Thread starter The Don
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Indeed. Which is why I described this tax as the politics of envy. It's a financial irrelevance. Indeed, it's worse than that. It takes capital and turns it into current account spending. In other words, it strips capital out of the country........or, to put it much the way some misguided Lord did 30 years ago......it's selling off the family silver to fund your weekly shopping.
We are never going to agree on this. Welfare, in my view, does the exact opposite of increasing social mobility. It has extremely important functions in civilised societies, but increasing social mobility isn't one of them.
3point14
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I don't get that. If the wealth isn't leaving the country, how is it selling off the family silver? It's staying in the family, surely?
Question - given the current loss to the treasury though tax avoidance, offshoring and other dubious methods to avoid paying what's due, is inheritance tax the least avoidable method to collect from those who are avoiding paying for the country they live in?
No. It is easily avoided or mitigated. It catches those who are wealthy enough to just cross the threshold, but not wealthy enough to justify setting up trusts and the like.
Tax avoidance through "offshoring" and other schemes is despicable. I'd suggest we sorted that out before we tax people for passing their family home down to their kids.
As for the family silver analogy........it's staying in (someone else's) family as income/ spending, rather than remaining as capital. Living off capital is never a great plan.
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Well paying jobs are due to a worker being productive. Large pensions are a result of accumulation of assets.
You need to turn it around though. You don't have to pay state pensions to the wealthy to stimulate the creation of private pensions, but not paying them to those who accumulate sufficient funds creates a disincentive to start a substantial fund in the first place.
This can be avoided by making contributions mandatory I suppose, but that's little different than simply levying a payroll tax and then redistributing it to the pensioners.
With inflation over 30+ years, that's bad enough.
Ouch
Talk about redundancy.The funds themselves spread the money around as well you know
Oh I see, means testing basically means the government looks at your assets and distributes goodies accordingly. There are issues with that of course, especially for people who are just over the arbitrary limit. The largest issue I take with it is that when it comes to caring for the elderly, not all assets are created equal. A large and valuable family house or an equally large value in stocks and bonds are profoundly different in useful value to the elderly person.
At any rate I strongly oppose giving out benefits based on what the person did with his money while he was earning it. If all else was equal and you were saving your money away all your life while I was spending it all, it is, first of all, grossly unfair that I receive a state pension because I don't have any savings but you're forced to live off your savings because you have them.
More importantly, this obviously creates a strong disincentive to save any meaningful amount of money for the rest of the population. The only way around it is if state pension is so small it leaves you so poor most people are better off relying on savings - which is a situation you were trying to address with your solution.
As far as I see it basically increased the costs of employing someone by that amount and forced employees to buy private pension insurance with the increase. The employees paid that in later years by reduced wage inflation, the country at large paid that though reduced investment and so on, there are probably several other places where the effect was seen. It could be the effect was small enough and it wasn't noticed because it was done at the right moment, when the economy was expanding. I'm speculating, but it could have even prevented overheating of the economy at the time, in that case it was timed right.
You need to keep that in mind when you're discussing changes to the pension system. If a similar change was done at the wrong time - e.g. UK within the next five years - the results could be outright horrific.
McHrozni
Regarding means testing, there is usually some kind of "taper" in both the benefits received and the way in which the means test is applied so that it's not a case of "you receive £100 a week is your income is £x but £0 if your income is £x +1p". The exception is in the UK in the case of personal care payments.
Regarding assets, one of the reasons why the means testing tends to focus on income is that it's not easy to value assets and those assets may not be readily liquidated. The government may have an opportunity to get some tax revenue if they are liquidated depending on the nature of those assets and their exposure to capital gains taxation.
Indeed, as you point out, a large house may be a capital asset but an income liability for someone on small, fixed,income (which opens up a whole other debate about the extent to which the state should subsidise people living in housing they could otherwise not afford so that they can pass that asset onto their descendants) whereas a similar value in investments may yield a (taxable) income or relatively realisable capital gain.
That's one way of looking at it, I prefer the view that scarce resources should be allocated to those who need them most. All things being equal, and barring some kind of post-Brexit economic calamity which results in hyperinflation and/or asset seizure, It's likely that Mrs Don and I will retire with assets somewhere in the £mid-seven-figures range which should enable us to generate an income and/or asset drawdown in the £50-£100k range, a very comfortable retirement indeed. Because we will have also worked in the UK for a long time (and in the case of Mrs Don, in the US to qualify for Social Security) the state will also pay us the full pension, £155 a week currently, which is nothing to sneeze at. I'm sure that there are 15 people out there who worked hard but due to their personal circumstances didn't accumulate what amounts to quite frankly ludicrous sums of money who could really use an extra £10 a week to put food on the table or keep the house warm.
Why ?
It does it every penny earned in personal pension is a penny that you don't get in state pension but even then there are a lot of people out there with private pensions which comfortably exceed the state pension.
To me it's a logical as saying that providing means tested tax credits act as a disincentive to people getting good paying jobs and that instead of, say, 25% of the population on average getting an extra £40 a week to help them make ends meet, everyone should get an extra £10 a week, regardless of how much they earn, lest the targeted payments act as a disincentive
Archie Gemmill Goal
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Hiding. Buy land. Exempt from inheritance tax. There is a reason why some of our wealthiest have more land than the Queen.
Ouch
The funds themselves spread the money around as well you know
In part the Equitable Life debacle has meant that I may have a tendency to over-diversify but then again there are other factor in play.
Even if you're not worried about an investment company going bust they may just be under-performers (I have an unenviable ability to pick funds that regularly perform in the third quartile
) or one company simply may not offer the the type of fund that you're looking for (Latvian petrochemicals or somesuch).Archie Gemmill Goal
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Doesn't strip capital out of the country if it's in private hands really. Plus the asset still exists. In theory you could repossess all these houses for social housing and have a win win.
Archie Gemmill Goal
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It's hard to be socially mobile if you have started to death or contracted TB.
As discussed, a non-means-tested benefit/ pension is cheaply administered. If you take the cost of means testing away from the cost of providing the benefit/ pension to wealthy people, there may be little or nothing left over for re-distribution to the poor. You giving up £155 per week (via means testing) will certainly help fill the bellies of bureaucrats, but may not put a single hot meal on the table for poorer pensioners. This is the reason why the most stupid of all the benefits, child benefit, is still universal.
Phrases like the highlighted are emotionally charged but I'm not sure that the case has been made that such a significant asset transfer should be exempt from tax. It feels like a relic from some bygone age in which the family estate (along with the feudal residents or faithful retainers - depending on what century we're in) is passed from generation to generation to preserve order in the kingdom.
These days it's more likely that it's people in their seventies and eighties passing on an asset, which may or may not have significant emotional attachment depending on whether it was the childhood home or just "some house", to people in early middle age who will likely sell the asset and use the money to pay off some of the mortgage on their own, overpriced, home.
The logic behind this is that if you reward good behavior you encourage it, but if you punish it (or reward bad behavior) you discourage it. It's rather straightforward as far as I see it.
Why ?
It does it every penny earned in personal pension is a penny that you don't get in state pension but even then there are a lot of people out there with private pensions which comfortably exceed the state pension.
To me it's a logical as saying that providing means tested tax credits act as a disincentive to people getting good paying jobs and that instead of, say, 25% of the population on average getting an extra £40 a week to help them make ends meet, everyone should get an extra £10 a week, regardless of how much they earn, lest the targeted payments act as a disincentive
The entire Soviet ideology worked on precisely that theoretical principle. Instead of paying people what they deserved, they sought to pay them based on their needs. It seems a very efficient way to run the economy in theory, but it has a strong unfortunate result of creating a strong disincentive to work well, because working well in no way improved your daily life.
The system you propose suffers from the same problem. If you don't adequately reward responsible behavior there will be less of it. The results wouldn't be anywhere near as bad as the results in USSR were (the systematized corruption did even more damage), but they will suffer from some of the worst aspects of that system. It's better to avoid it if possible.
Look at it this way, you will have sufficient assets to live comfortably even if the government takes away your state pension, but what message does this send to Don junior? You can either save hard-earned money all your life and live comfortably in retirement, or you can spend all your hard-earned money and you'll live about as comfortably in retirement because the government will finance you anyway.
Far more Don juniors will opt for the government payments as a result if the alternative was notably more harsh. In the long run such a system will do little to ease the burden of pensions on the budget, but it will also ensure private pensions are a privilege for the wealthy alone.
McHrozni
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Two significant differences. Child benefit is paid at a significantly lower level which means that the administration costs represent a greater proportion of the benefits and it's no longer functionally universal because the tax system is used to claw it back from high earners in a low cost (albeit IMO unfair) way - Though I agree it's a ridiculous benefit and is a sop to middle and high earners IMO in the same way that the universal pension is (child benefit resulted from changes to the tax system which used to benefit higher earners more).
IMO the "it's too expensive to administer" is a Sir Humphrey excuse used to maintain the status quo. I'm not saying that it would be seamless but a system based on the tax system would be quite simple to administer for the vast majority of people who have one or two sources of retirement income. It would be more complicated for people like myself whose retirement income is likely to some from many sources and many countries but then again people like me are used to having comparatively complex tax affairs.
IMO means testing of pensions and targeting those most in need is technically achievable but politically very difficult. In part this is because the most influential pensioners are those who are most likely to be affected. Major Buffton-Tuffton from the local Conservative association and Sheila Walkout who was a successful career civil servant and is now an Age Concern agitator both use their state pension to enhance their very comfortable retirements. They may make noises about poor pensioners, but in truth they are more worried about having to switch gin brands or forego their third foreign holiday than they are about Joe or Jane Smith trying to make ends meet on the basic state pension
..........Major Buffton-Tuffton from the local Conservative association and Sheila Walkout who was a successful career civil servant and is now an Age Concern agitator both use their state pension to enhance their very comfortable retirements. They may make noises about poor pensioners, but in truth they are more worried about having to switch gin brands or forego their third foreign holiday than they are about Joe or Jane Smith trying to make ends meet on the basic state pension
Yeah, I'm not seeing anything other than the usual class warfare and politics of envy.
And this is a bizarre way of looking at economics and politics, in my view. The implication is that everything should be taxed unless a good reason can be found to exempt it. Others might think that nothing should be taxed unless it has to be.
I think this highlights the problem. Unlike many European state pensions and maybe even US social security, the UK state pension comes nowhere near to funding a comfortable retirement. If, on retirement, you have to rely on the state pension you will be poor, likely very poor. If you blow your money throughout your life (like the grasshopper) then your retirement experience will be an uncomfortable one (and ignoring the fact that employers are obliged to provide a pension scheme so you cannot opt out entirely).
The only way to ensure a comfortable retirement is to have significant private pension provision (either as a result of a defined benefits or defined contribution scheme) which will entail someone paying into that scheme. There may be some people who ignore the copious warnings and the regular government adverts on the subject but IMO the message should be getting through.
The message is clear, at least to me. If you want to have a comfortable retirement then you have to make your own provision.
Like I say, barring economic mayhem, paying me the state pension when I retire makes as much sense as paying me "in work benefits" (even though I'm a relatively high earner) or Child Benefit (even though I don't have children) on the grounds that not paying them would send the wrong message
I understand the emotional attachment to the universal state pension and personally I wouldn't say no to a few thousand quid a year in retirement, it may allow me to run the Jag and the MG and not have to choose between them, but I don't understand the economic sense of giving scarce resources to people like me who don't need them when there are people in far greater need.
3point14
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When significant assets change hands, aren't they usually taxed? Or is it the exception?
I was under the impression that, almost every time something changed hands, it was taxed.
Hell, I'm taxed when I buy a shirt.
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It's clear that's your view, I have a different one. We live in a country where levels of economic and social mobility are at recent lows. Time and again it's been demonstrated that the ability to transfer wealth to the next generation is a significant inhibitor in economic and social mobility.
I can understand people like me (but who have children) being resistant to inheritance tax. We want to ensure that our descendants continue to enjoy the benefits of being the "right" side of the income/wealth/class divide and be given the greatest possible head start in life.
It isn't fair or equitable (but then again I suppose neither is life), but then again it may not be for the overall benefit of society. Perhaps if the "best and brightest" really were able to make it to the top as opposed to the "halfway decent but privileged" maybe we would have a better society, more effective government and so on.
They may but crudely IMO there are four sources of taxation...
- Income
- Consumption
- Assets
- Transfers/transactions
....and a "good" tax system is able to spread the load between these sources so that no one group is taxed too unfairly (a consumption tax for example means that the poor are most heavily taxed) and that there isn't an opportunity to (legally) avoid taxation by concentrating assets and income in one area.
IMO, at the moment, Income and Consumption are already taxed (though IMO marginal tax rates could be higher) but assets are severely undertaxed. Someone who is income "poor" but asset rich does little to help fund the society in which they live, despite their wealth. Inheritance tax does something to address that by forcing the income poor but asset rich to make their contribution on their death.
- highly tax efficientI understand the emotional attachment to the universal state pension and personally I wouldn't say no to a few thousand quid a year in retirement, it may allow me to run the Jag and the MG and not have to choose between them, but I don't understand the economic sense of giving scarce resources to people like me who don't need them when there are people in far greater need.
You can make the same argument against competition. What's the benefit of competition in business anyway, all it does it take away resources that could be used better and spends them on unnecessary things, like advertising, market research and whatnot. Wouldn't it make more economic sense if there was only one firm that could produce or sell any type of product? It would substantially reduce waste and enable more resources to be spent on better things.
The answer is the same there as it is here. While it may appear for that system to be superior, the fact you remove the incentive to improve products in the case I described or save money for retirement in the case we're talking about, there will be little of either in the long run. The system could run well for a few years, maybe up to a decade or so, but it will be a miserable failure within a generation. Evolutionary all beings are inherently lazy - we all seek maximum benefit for minimum effort. If the optimal cost-benefit calculation shows you better spend all your money and don't have any significant savings, most people will opt for that. This will eventually destroy any benefits your scheme might have.
The only way around it is if the state scheme leaves you rather poor, but that obviously doesn't address the problem of pensioners without assets who live in poverty.
McHrozni
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