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Pensioners should 'share the pain and pay more tax'

Pensioners should share the pain of austerity cuts and pay more tax to make the housing market fairer, a think-tank has said.

As middle-income workers' wages stagnate and they can’t afford to buy a home, the Fabian Society claims high levels of home ownership among older people threaten fairness across generations.

More than three-quarters of pensioners now own homes, compared with just over half 20 years ago.

But the last decade has seen a dramatic fall in home ownership among under-45s, the think-tank said.

In 1979 middle-income working age households enjoyed an income 93% above that of middle-income retired households. That figure is now 37%, the study showed.

“Old age is no longer a proxy for poverty... In financial terms alone, older people are no longer distinct and blanket policies favouring them should be reviewed," the society said. 

The society argued that pensioners' taxes should increase, their benefits be cut, and a tax on property wealth should be introduced.

The key policy should be to raise taxes on pensioners so the 27% they pay as a portion of their gross income would rise to 33%, in line with working age households with the same income.

This would raise £7.2billion every year, the society said. But the project should be long-term, to avoid a sharp drop in living standards.

In the meantime, the Government should consider measures such as taxing private pension lump sums to help fund universal care services.

Specific universal benefits such as the winter fuel allowance - which contributes 3% to middle earning pensioners' incomes - could be re-assessed without threatening the wider principle of universalism, the think-tank said.

The age of 80 is an "appropriate starting point" for age-specific benefits "if the policy is aimed at supporting those on low incomes or older people with high social or health needs", the think-tank argued.

The Government should also scrap its "triple-lock", which keeps pensions rising in line with the highest measure of inflation, as when working age incomes are falling it "creates inter-generational unfairness".

"The adverse impact of either approach on retired households in the middle could be justified by the need to 'share the pain'," the society said.

However, Age UK said more than half of pensioners don't have enough money to pay any tax at all.

“The Fabian Society is right to point out that there has been significant progress in tackling pensioner poverty in recent years," said Michelle Mitchell, Age UK’s charity director general.

"But there are still 1.7 million pensioners living in poverty today, while a further 1.1million have incomes only just above the poverty line.
“It can be difficult for older people to adapt to changes in income as their options are likely to be very limited. They have also contributed National Insurance payments throughout their working lives, to receive in return a state pension that ensures a financial safety net but little more.”

As well as cutting benefits or increasing taxes, the think-tank backed Labour's calls for a tax on property wealth, saying it could be done through council tax reform.

Commenting on the report, a Department for Communities and Local Government spokesman said: "We are pulling out all the stops to get more homes built for all generations and we're determined that good design will be the cornerstone of that.

"Our reforms are making the planning system much more accessible and by putting local decisions centre stage we are encouraging development that protects our countryside and responsible building.

"The new neighbourhood planning powers we've introduced ensure that local communities decide on the homes they want in their area. These changes are already paying off with a number of plans looking to provide more homes for the older generation."