Sunday, October 15, 2006

Telegraph headlines Gordon Brown’s Robin Hood-style pension wealth redistribution success. Doing good by stealth?

More than a million UK pensioners enjoy incomes higher than the national average earnings of people who still have to work for a living. At the other end of the scale more than two million UK pensioners are now substantially better off thanks to the Pension Credit scheme which was introduced in this Labour government’s first term.

Well off pensioners receive the State pension plus pensions from their previous employers and/or private pension schemes. The pension funds behind these schemes have for a long time enjoyed extremely generous tax concessions from the treasury in an attempt to encourage people to save for their old age.

One of Gordon Brown’s changes to the tax system was to remove one of these concessions leaving many others still in place. The Sunday Telegraph reports that this has resulted in about one hundred billion pounds less in these funds than might otherwise have been the case. This amount would have generated about five billion pounds a year in income for these funds.

Pension credit pays out something like 1,650 pounds a year on average to about three million pensioners who would otherwise have only the state pension to live on. That’s about five billion pounds a year. So the so-called ‘raid’ on pension funds for the wealthy has paid for the extra money going to help the poorest pensioners.

Sounds good to me. Taking subsidies away from the wealthy and spending them on the poor. Starting to address the anomaly whereby the state pays more to the richest pensioners than it does to the poorest.

Here’s something for campaigners for an increase in basic state pensions to think about. Would you rather give every pensioner, including the best off, an increase of a thousand pounds each a year or the least well off an increase of five thousand a year each?

As the Americans put it: you do the math. Unfortunately most journalists and many political campaigners aren’t very good at sums.

By the way most of the above figures are very rough guesstimates, I haven’t got time to check their accuracy but they won’t be a million percent adrift...


At 13:23, Blogger cassilis said...

I'm afraid your own sums aren't entirely watertight.

Gordon's 'raid' has taken out c.£100bn in funds which CURRENTLY would provide £5bn in income. At the same time 'Gordon of Loxley' is CURRENTLY using the pension credit system to return a similar sum to less well-off pesioners. In your eyes this seems like a fair trade..

With all due respect Brian (it's hard to sound sincere in the written word but I do mean that) that sort of thinking illustrates how intellectually, economically and arithmetically bankrupt Gordon Brown is. By no stretch of the imagination could that system be construed as robbing the rich to pay the poor' - 'robbing the young to pay the old' perhaps.

At 14:15, Blogger Harry Perkins said...

Let battle commence!

At 14:34, Blogger Hughes Views said...

Cassilis - there is something in what you say although if the funds are being run properly (joke) it should be today's pensioners who are taking a hit in addition to tomorrow's. There has always been an element of robbing the young to pay for the old in pension provision both in the state and in the private systems but I can't really be bothered to go into that in more depth now!

Harry - welcome, but who is your main battle with exactly?!

At 17:03, Anonymous politicalcorrespondent said...

There are various ways to help pensioners, but bunging tons of cash to the stock market to prop up shares is not a particularly efficient nor equitable way to do it, as it skews money away from the poorest pensioners, while a lot of the gains just go to the various wealthy interests who own shares.

Funnily enough though, it always happens to be the way that the Tories want to do it, even under cuddly Cameron.

Reminds me of their back-of-an-envelope stamp duty cuts plan:

It'll be interesting to see what Dave comes up with when the various Policy Commissions report.

At 17:15, Blogger cassilis said...

At the risk of taking 'politicalcorrespondent's bait too easily, I have to take issue with the phrase "wealthy interests who own shares".

I wish I could source the stat but you'll just have to take me on good faith - I read somewhere recently that c.70% of the UK population have income or future income linked to investments - that's some wealthy elite..!

At 17:15, Blogger cassilis said...

This comment has been removed by a blog administrator.

At 20:32, Blogger Hughes Views said...

And that’s a bit of a chestnut cassilis! The 70% or whatever comes from including everyone who has a life insurance policy, pension plan, ISA, etc., everyone who’s got a few company shares through their employment or bought their tiny holding from a privatisation issue and adding in every union member for good measure because their union invests funds in stocks and shares. Very few individuals have substantial shareholdings of their own.

Welcome politicalcorrespondent, much of what you write seems to me to be valid except that it isn’t only the very wealthy you make money out of stock markets (and we shouldn’t forget that it is the really poor who always suffer most as a result of stock market crashes and/or economic depressions)...

At 21:43, Blogger cassilis said...

I accept the 70% figure is arrived at by casting a very wide net. I only mention it to draw attention to the point you make far more succinctly Brian - the performance of our markets affect more than the wealthy few who dabble there directly...


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