Can I have this deal?

[fivemack]

http://news.bbc.co.uk/1/hi/business/7813791.stm: "But for every £500 they have saved over [£6000], the authorities assume they earn £1 per week in "tariff income" and reduce the benefit payments accordingly."

£1/week/£500 is 10.9%, a significantly better deal than Madoff!

Changing that figure to 25p would seem a nice boost to poor pensioners in next year's budget; I think that a truly honorable government should also commit to providing an investment which pays the "tariff income", at least on sums up to that on which the tariff income equals the State pension, and that would provide the right incentive to keep the assumed rate of tariff income sensible.

Comments

[bohemiancoast.livejournal.com]

It's not an assumption of interest; it's a policy decision that if you have capital above a certain level you can afford to use part of it to fund your income shortfall. Quite different, and I don't think it's unreasonable to expect people with significant savings to use part of that to support themselves rather than relying on money from other people's taxes.

[simont]

*nods* It's the rate at which the government expects you to use up your savings (or, at least, won't pay to protect you from having to). Of course, if you do so as specified, then the next year you have less money saved and your benefits go up again.

[tau-iota-mu-c.livejournal.com]

Welfare as a servo system. Let's hope it's got in built damping.

[beingjdc.livejournal.com]

But at the point when this dips below realistic investment returns (and the 6.5% it assumes on £16,000 of savings) it becomes a disincentive to having those savings at all - you may as well spend the money the day before your retirement - use it to stock up on food that doesn't go out of date and get all your redecoration out of the way, or even go on a world cruise.

More importantly, the couple in the example are regulated rent tenants. I think there's something fundamentally inequitable about withdrawing people's benefits because they have £15,000 in the bank (and pay rent) when there'd be no such withdrawal if they had £6000 in the bank and owned £150,000 worth of house outright.

[naath.livejournal.com]

Inequitable> indeed it is. People-claiming-benefits should have to sell valuable assets (such as real estate) and investments as well as spend savings.

I see a whole shed load of reasons to pay people benefits so that they do not starve or freeze when they have no ability to pay for food, heating or shelter (and so forth). I see pretty much bugger all reason to pay people benefits when they "can't pay" their food/heating/rent bills solely because they "don't want to" spend their savings/move into a smaller house/whatever.

[beingjdc.livejournal.com]

It is certainly nonsense that people in large houses with small incomes get so much media coverage for their inability to pay their council tax, when they have access both to a means of increasing their ability to pay, and of reducing the bill.

However, as as society there has to be some incentive for people to accumulate wealth as well as to consume it. If my job's insecure in your system, I may as well spend my savings today on things I want, rather than next year on things I need - the taxpayer can cover that.

The actual answer for these pensioners is probably to buy an annuity with their excess savings, of course, the pension guarantee savings reward element or whatever it's called this year should see them right on the maths.

[tigerfort.livejournal.com]

People-claiming-benefits should have to sell valuable assets (such as real estate) and investments as well as spend savings.

Part of the problem, though, is that the system scales very badly. People who have a modest level of assets are punished by it, but people who have a high level of assets are rewarded. Thus, if you buy one house, the government will only pay a portion of the interest on your mortgage, but if you can afford to put down deposits on ten and then rent nine of them out to people on benefits, the government will happily give you enough money to pay the mortgages on all of them. *Much* more than ten times the amount they'd give you towards the mortgage payments on one of those houses. Is giving money to private landlords really so much better from the system's point of view than giving it to people who own their own houses? Surely it's fairer to distribute the money as evenly as possible? (Assuming that they live in reasonable sized houses; someone who lives by themselves in a ten-bedroom mansion probably needs psychological help rather than the financial kind. Of course, working out exactly where to draw the line is always tricky, but that's another matter.)

[naath.livejournal.com]

The government could make it illegal to be a private landlord... or better, the government could enforce regulations such that "being a landlord" is actual work.

But, yes, you are right that it scales badly.

I don't think "distributing the capital more fairly" is *helped* by people who just sit on their damn money so that they can give it to their children, so their children have a head start in the race to accumulate the most capital! Another reason to encourage pensioners to spend their savings (possibly on annuities).

[tigerfort.livejournal.com]

I don't think "distributing the capital more fairly" is *helped* by people who just sit on their damn money so that they can give it to their children, so their children have a head start in the race to accumulate the most capital!

Agreed (and with the rest, too), but then I think that a "race to accumulate the most capital" is a pretty lousy way to organise a society anyway (which I imagine you do too.)

The other side of the question is the utility/value provided by any given piece of government expenditure. To take a not-random example, surely it makes sense for the gov't/council to spend GBP600 per month to pay a couple's mortgage and keep them in their own house rather than pay GBP750 per month in rent to move them into the identical house next door.

One solution would be that when a social payment towards your rent/mortgage is made, then 'society' (in the form of the gov't, the local council, some approved housing association, whatever) becomes owner of a suitable chunk of the equity in exchange. But that has problems of its own (most notably with private landlords again, but).

[naath.livejournal.com]

Well the government could buy your house off you slowly; and then it could be a council house! And that would both keep you in your house *and* expand the social housing available.

[tigerfort.livejournal.com]

That's roughly what I'm suggesting in the final paragraph, but yes, you could even apply it to people who already own a house outright. You still have a fight on your hands with private landlords, though, who will object to having their assets taken away because their tenants have become unemployed. (Funny how the problem with changing the system is always that the people who are on top at present don't want it to change.) And you've got to apply it to rental property as well as owner-occupied, or you're simply tweaking the unfairness rather than doing anything to actually correct it.

[naath.livejournal.com]

Ah yes; I see that would be a problem.

Perhaps you could ensure that you were paying fair market value for the house or something. Private landlords are very annoying.

[bohemiancoast.livejournal.com]

This is why there's a minimum savings level before this kicks in. This is a pretty complex issue; there's a lot of different things going on.

As for asset ownership, you have ignored the fact that means-tested benefits include the costs of rent (through Housing Benefit) but do not, for the most part, cover the costs of home ownership (except for mortgages in some limited circumstances).

[beingjdc.livejournal.com]

As far as I can tell, under the new rules you get more from the government if you lose your job with a mortgage than if you lose your job as a tenant...

[naath.livejournal.com]

Isn't that like the way that if you have savings you don't get JSA because you are meant to spend the damn savings though? If you had 6 grand in the bank you could *spend that 6 grand* at 1 pound per week over a period of 115 years which is probably rather longer than you expected to live.

[hsenag.livejournal.com]

500 is what's equivalent to 1 pound a week, so more like 9 years.

[naath.livejournal.com]

Ah, whups.

Still I think that sitting on a huge pile of money rather than spending it *whilst claiming that you are poor and need help* is somehow wrong.

[bohemiancoast.livejournal.com]

For people of working age, no question. For pensioners the question is much more complex, because it's important not to disincentivise savers -- as mentioned above. It would not be a good idea to hammer savers excessively if the result was that workers concluded that there was no point saving for their retirement.

It's even more complicated, though, because of the relative utility of money. Basically, the richer you are, the less marginal enjoyment you get out of each pound you spend. So it is worth balancing those pounds over people's lifetimes; savings generating a relatively small improvement in retirement income will improve people's quality of life quite a lot.

There's an additional problem, which is that although we assume that pensioners sitting on savings can spend some of it to shore up their income, most of them then choose not to touch their capital, and suffer income poverty instead.

The solution for people in work is to do all they can to adequately provide for retirement, certainly. Also part of the solution is probably around flexible retirement and gradual downshifting. The notion that people can retire at 60 and enjoy typically 25-30 years on half income without working is pretty implausible.

[naath.livejournal.com]

I just don't understand why people "save" without having a plan for what to spend it on. I can see "saving for my retirement" (to buy a nice annuity, say)... but at the point where you are retired and there's a pile of savings that you are refusing to spend *why* especially if as a result of doing so you are at a level of poverty where you need benefits?

[pavanne.livejournal.com]

I'm perfectly happy saving without having a very focused plan. It's mainly about security. Having at least a year's living costs in the bank is important to me, so I don't need to worry, make decisions based on short-term financial pressure or shell out for insurance.

This probably gets stronger as you get older. Being poor while young and healthy is mildly inconvenient, being poor, old and sick would be horrible. Since you don't know how long you will live, in early old age you will obviously want to hang on to your cash in case you need it more later.

I'm not weighing in on the 'what shall we do' debate because I agree we should not give benefits to people who don't need them, but also that people shouldn't be disincentivised from keeping moderate amounts back for a rainy day even when they need benefits. It is a difficult balance.