Aged 25 to 35? Don’t bank on getting any state pension
PUBLISHED: 23:18 13 May 2018 | UPDATED: 23:32 13 May 2018
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‘Make your own provision as soon as possible and you’ll thank me in four or five decades.’ Peter Sharkey repeats advice after latest political kerfuffle
A report by the Resolution Foundation grabbed a disproportionate number of headlines last week after its chairman, Lord Willetts, insisted on highlighting what he believes is the UK’s “unfair” wealth distribution.
Memo to the former universities minister, a man once said to be so intelligent his colleagues called him “Two Brains”: it’s always been unfair. We don’t live in Utopia, although the UK is a significantly less unfair place than it once was.
The foundation’s recommendations provoked heated debate in some quarters, primarily because several of them were highly inflammatory, at least for some sectors of society.
Topping this list was the proposal to hand £10,000 to everyone once they reach the age of 25, a display of state largesse paid for by a “lifetime receipts tax” that would replace inheritance tax.
Next was the suggestion council tax should be scrapped and replaced with a levy on wealthier homeowners. There was no definition of wealth.
Third was the proposal to use the proceeds from this new tax to halve stamp duty for first-time property buyers and to increase public funding of social care.
Finally, the icing on the intergenerational cake was the suggestion that retirees, many of whom work part-time, should be taxed more heavily than they are at
present by making them liable for “National Insurance Contributions” – an income tax by any other name. Without such radical action, said Lord Willetts, young people would become “increasingly angry”. He prefaced this observation with another straight from the Politician’s Book of the Ridiculous when noting the contract between young and old had “broken down”. Neither was supported by a shred of evidence.
If we examine the Resolution Foundation’s proposals in greater detail, it becomes evident that while radical action is necessary if we’re to address the “problem” of life expectancy, the suggestions require a great deal more thought.
Granted, it would be great if someone could simply credit your bank account with ten grand on your 25th birthday, but how would it be used? The foundation suggests it could pay for further education, encourage a form of nascent entrepreneurialism, or be used to buy a home.
Not only is such a proposal wide open to abuse, what happens if the recipient drops out of his further education course, her business fails, or the house purchase falls through? And if we’re talking about fairness, wouldn’t it be fairer to give younger folks living in London and the south east an additional amount – say £15,000 – because everything is so expensive there? Or perhaps the underlying plan is to get everyone to move to the north east, where houses are less pricey.
The recommendation to scrap council tax and replace it with a levy on wealthier homeowners is simply vindictive. We’re led to believe that it’s only UK-based baby boomers (the baddies in the Resolution Foundation’s eyes) who have seen the value of their homes soar over the past 40 years. Yet since the late 1970s, property values have risen across Europe, Australasia, North America, Asia, the Middle East and most of Africa. Rising house prices are not a characteristic peculiar to the UK; they’ve increased just about everywhere.
None the less, it’s reasonable to assume that, over the longer term, they’re not going to fall and we will (as happens in the States and Down Under) begin to view our homes (yes, I’m a baddie) as an increasingly liquid form of wealth.
As the state pension system nears collapse (in January, I noted that the UK’s pension pot is projected to run dry by 2035), so the rate with which homeowners draw money from their property will increase. This will be used to supplement a dwindling state pension and to pay for care. Whatever’s left, in terms of equity, will, in 99.9% of cases, pass to the homeowners’ descendants, as it always has.
Considering that almost all people have bought and maintained their homes out of taxed income over extremely lengthy periods, it’s a bit rich to start hitting them again with a spiteful tax, especially as their property could prove a useful source of wealth when it’s needed most. Halving stamp duty for some and not for others sounds very unfair to me, and using part of the cash to “fund social care” sounds superfluous because, as we’ve seen, the homeowners’ property could do this for them. Indeed, in many cases, it already does.
It would be easy to end by saying that the Resolution Foundation needs a kick up the backside, but that would be unfair. The body is acting in good faith; its suggestions are a little out of kilter, that’s all.
If there’s a lesson to be drawn from this, it’s that Millennials should become financially self-sufficient as soon as possible. As I wrote last autumn, “If you’re aged 25-35, the news [regarding pensions] is… bleak. In fact, it’s so bad, the sensible thing would be to discount receiving any state pension at all. Make your own provision as soon as possible and you’ll thank me for it in four or five decades.”
The foundation’s report may be a little misguided, but it makes this advice even more pressing.
Royal wedding stats
There are 5,902 couples scheduled to get married on Saturday, but only one union, in Windsor, will attract an estimated TV audience of three billion. We look at some of this week’s extraordinary numbers associated with Harry and Meghan’s big day…
This figure sounds far too precise to us, but a wedding magazine has calculated this is how much the royal nuptials will cost. The average wedding costs £17,913, which means that expenditure on Saturday’s big bash in Windsor will come in at more than 100 times the average, a figure that looks a little low.
According to a wedding planning app, each of the 4,040 guests is expected to drink four glasses of champagne. This means there’ll be more than 16,000 flutes of fizz downed before the evening disco prompts Prince Charles into some serious ‘Dad Dancing’.
In addition to a chunky bar bill, someone is picking up the tab for an estimated 28,000 canapes served by 1,000 waiters. There’s no ‘Oh, help yourself’ planned at Windsor, where the lavatory facilities are being supplemented by 40 ‘top-of-the-range’ portaloos.
At the point where there won’t be a dry eye in the house (immediately after the ceremony in St George’s Chapel) it’s estimated us Brits will do what we do best – put the kettle on. Three million are expected to be boiled after the ceremony.
In addition to the 800 guests seated inside the chapel to hear the couple utter “I do”, a further 2,640 members of the public have been invited to join in the festivities. After this, the happy couple will head to a private evening reception with 600 of their guests.
Peter Sharkey read economics at the University of Bristol. He worked as an accountant on three continents and has been a company director and investor for more than 30 years, building and selling three different companies.
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