Should pensioners pay more tax?

A new report has suggested older people need to pay more in tax.

Older people should be subject to the same rates of tax as younger people, according to a new study by the Fabian Society.

The think tank’s research identified “really significant intergenerational unfairness” on the issue of taxation. It called on the Government to “adopt a ‘presumption of equality’ when considering public policy for different age groups” and for all policies where older people are given a financial advantage to be reviewed, as “older people are no longer special”.

Improving middle incomes

The society’s report identified incomes for older people in the ‘squeezed middle’ improving significantly in recent years. Since the financial crisis real middle incomes have fallen by 5% overall, yet for retired households those incomes have grown by 5%.

This trend is predicted to continue.

The report argues that such healthy retirement incomes are a good thing, and that the focus should initially be on improving incomes for middle-income people of working age.

Nonetheless, “the different fortunes of the retired and non-retired ‘middle’ is something that cannot be entirely ignored when politicians consider hard financial choices”.

A question of tax

However, the most interesting part of the report is unquestionably its section on tax. The report’s author, Andrew Harrop, suggests it is difficult to justify large differences in our tax bills based simply on age, particularly when you consider how much of the housing assets of the nation are in the hands of older people.

As a result the Government should “adopt a policy of equalising the burden of taxation paid by different people of different ages”.

How it could be done

The report suggests a number of ways this could be achieved. They include:

• Tax wealth and consumption more and earnings less
• Treat earnings and pensionable income the same by merging National Insurance and Income Tax
• Apply National Insurance to earnings after State Pension age
• End tax-free lump sums on private pensions
• Implementing a Land Value Tax or reform Council Tax to help younger people buy

What do you think? Should older people pay more?

You can read the full report on the Fabian Society website.

More on tax:

Where Council Tax is rising and falling in 2013/14

How to cut your Inheritance Tax bill

How to make sure you’re on the right tax code

How to slash your Council Tax bill

Ten ways to avoid Capital Gains Tax

How to get a tax refund

Beware this tax scam