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]

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.