Private initiative has always had a key role in the UK?s welfare state. Indeed, as Sir William Beveridge wrote in his influential 1942 report, Social Insurance and Allied Services, ?social security must be achieved by co-operation between the State and the individual. The State should offer security for service and contribution. The State in organising security should not stifle incentive, opportunity, responsibility; in establishing a national minimum, it should leave room and encouragement for voluntary action by each individual to provide more than that minimum for himself and his family.?
Thus while attention is often given to changes taking place to public programmes, such as increases in the state pension age, it is important to not lose sight of how the environment for ?the private pillar? is changing too.
As the Chartered Insurance Institute has shown the private welfare market is undergoing significant change. With the increasing numbers of baby boomers now retiring the focus is moving from ?accumulation? (building up financial and other assets) to also include ?decumulation? (converting these assets into income streams).
The result is that market solutions to help families make the most of the equity in their assets are becoming more important. Releasing equity tied up in housing stock, for example, is playing a greater role in lifting living standards of income poor but asset rich retired households, extending the time families can comfortably live in their own homes and funding care.
Yet these markets face challenges. One challenge is public attitudes. As Lord German has noted, in the United Kingdom there is a perception that a ?home is a family asset to be valued as a statement of personal freedom, and intended for passing on to other members of the family.?
As hard as this is to say, this perception cannot last. Population ageing will create a real hole in the public finances and the large amount of equity tied up in family homes should play a part in helping plug this gap. People over 65 hold 29 per cent of owner occupied homes, 93 per cent of which are owned outright without a mortgage. As the Pensions Policy Institute noted in 2009 the value of housing wealth owned by people over State Pension Age was already ?907 billion and will be likely to increase to ?1,274 billion by 2030.
There is no doubt that politically this is a difficult case to make. But it cannot be fair to level additional taxes on younger workers simply so that wealthy pensioners do not have to drawdown wealth. And the longer it takes to grasp the political nettle the harder change will be. Delay will make change more costly and disruptive for families. Delay will also mean the political barriers are higher ? with the share of the voting population over 55 projected to increase from 2 in 5 now to 45 per cent in 2020.
Dr Patrick Nolan is the Chief Economist of the independent think tank?Reform.
Its new research report Entitlement Reform is available at?www.reform.co.uk, #entitlementreform
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