Taxes for the rich – benefits for all

The FT’s Lex column is upset about the universal state pension which like the universal post, is the same wherever it applies in the United Kingdom

While it is more expensive for the Royal Mail to deliver a letter posted in London to Lerwick than Luton, it is a promise that the price to the customer is the same.

While people living in some parts of London are likely to live years longer than in some parts of Glasgow, we all get the same entitlement to the state pension, based on qualifying years not on qualifying income

The FT’s column suggests that universality is unfair and that it would be fairer to have some kind of underwriting.

Ros Altmann has said the same but I think differently. Firstly, there are certain entitlements we take to be part of being a resident in Britain – the universal postal system, the NHS and the benefit system are three. When you start asking questions about postcode, or earnings, or health, you introduce criteria to the benefit that create uncertainty and reduce the idea of citizenship.

Secondly, the underwriting process works both ways.. Some benefits are means tested, some are not, but with wealth comes knowledge and with knowledge power. Rich people are much more aware of how to exercise their power to get things than those with less wealth, education and self-confidence. You start introducing criteria like postcode and you start a process of “gaming”.

Thirdly, we should recognise the solidarity within society or a progressive taxation. While some taxes are regressive (private pension taxation being the obvious example) , most taxation is progressive, leading to a fairer society where the rich pay a higher proportion of their wealth to the Exchequer and the poor receive the same entitlement to goods and services as the rich.

It is one of the weirdnesses of behavior on pensions, that the rich, who have most reason to want to participate in longevity pools, spurn them in favor of drawdown and wealth retention systems. Annuities favor the rich – especially non-underwritten annuities. Pensions are great news for the well off- precisely because they need longevity protection more.

We do not have a means-tested state pension , as happens in other countries, we have a flat rate pension for all. Articles like the one I refer to in the FT, help. They make us recognise the nature of a universal benefit, but they do not help in benefit design.

The fundamental advantage of a universal benefit system is that it brings us together. There is much that pulls us apart but in our state pension we are one.




About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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4 Responses to Taxes for the rich – benefits for all

  1. David McNeice says:

    Nicely put. Why don’t you encourage a bit of thinking at the FT by asking how the editor believes the benefit of national defence should be paid for if it were to be done in a fair manner.

  2. davidtrypennycom says:

    It’s an interesting approach. And tend to agree that people would game the system. But we already see this with annuity rates, where postcode plays a part.

  3. John Mather says:

    Careful what you wish for those with an income above the old threshold of £150,000 number just 481,000 and they pay 33% of income tax the same amount as the 27,000,000 basic rate tax payers

    Lowering the threshold to £125,140 increases that number by 50%

    Unless they leave in which case the liability will trickle down

  4. John Mather says:

    Pushing the liability back and forward does not increase the size of the pot or reduce the liability

    Reducing the liability is rarely considered but the New Scientist has an interesting article showing some lateral thinking for a change

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