Young? Feeling hard done by? You are not alone. Nor are you unsupported. The Resolution Foundation is on your side. The think tank’s Intergenerational Commission reckons it’s time to tax the old and bribe the young. If they get their way, over-65s who work will pay national insurance (NI) in the same way as under-65s; the tax-free lump sum you can take when you draw your pension will fall to £42,000 (rather than 25% of the total); the triple lock on the state pension will become a double lock; inheritance tax (IHT) will be replaced with a “lifetime receipts” or gift tax on the recipient of cash (see my blogs); and pension tax relief will be a flat 28% (from today’s maximum of 45%). They’d also like to boost the pension chances of the young by lowering the salary level at which auto-enrolment kicks in, and to make employers of the self-employed contribute to pensions for them.
Some of this is perfectly reasonable. A healthy working 67-year old shouldn’t pay less tax than a 25-year-old, particularly when the link between NI and the state pension is increasingly tenuous. The fact that 25% of any pension pot can be withdrawn totally tax free – be it worth £10m (for those who got rich before the amount you could accrue in a pension was slashed to just over £1m) or £50,000 – probably isn’t sustainable. And IHT is a badly managed tax crying out for reform.
But some of the rest is just silly. Silliest of all is the plan to hand £10,000 directly to every 25-year old in the land. This is silly, partly because it isn’t means-tested (why give that kind of cash to the non-needy just because they are 25?) and partly because the idea that the young are living – and are set to continue living – lives worse than those of their parents is close to nonsense. The young might find it harder and harder to buy houses (which may be a short-term problem – the Halifax index shows prices down 3.1% in April). But their lives are not all misery. Thanks to auto-enrolment (which starts them saving a good decade before my generation even thought of doing so) and the magic of compounding, they are likely to hit retirement in as good shape as today’s pensioners. They are much more likely to have a degree, they are healthier, better informed and travelled, more likely to inherit wealth and have a higher income than any generation before them.
However, the biggest reason for us all to sigh on reading this stuff is that any talk of saving in one area always comes with demands for spending elsewhere. The Resolution Foundation has come up with some good ways for the UK state to save money (double lock instead of triple lock) and raise some taxes (via pension relief fiddles etc). But instead of rejoicing in how that money could be used to meet the expensive promises the state has made to voters already, their instinct is to push for more expensive promises – something that in the end will make them all unkeepable.