What the ONS tells us about assets
The distribution of income is, and always has been, an important indicator of fairness. But it is only part of a larger and more relevant story around personal assets.
Someone who lives in the home they own, expecting a reasonable inheritance and with money in a personal pension, is in a very different position to someone of the same age with none of these things but (with or without accumulated debts), even if their incomes are identical.
Thanks to pioneering work over the last decade by the Office for National Statistics we can now explore these issues in a way that was not previously possible. There are three big headlines from this.
First, on the whole, unsurprisingly, people tend to accumulate assets until retirement age and then draw them down. On retirement, the average household pension pot is £350,000 – with housing assets second at around £200,000. Second, there are enormous variations within this average. For example, the bottom fifth, with no property or pension pot, struggle, having more consumer debts than cash in the bank from their 20s all the way through until their 50s. Third, due to rising longevity, people tend to receive inheritances at precisely the time when they need it the least – in their late 60s.
Overall, around half of households in the United Kingdom are either financially secure or are on a path to being so. Of the remainder, around six million households are constrained by having to spend the whole of their lives renting and half of these have hardly any assets at all; two million younger households have financial debts that mean they find it harder to make progress than other households their age even though they are earning; and, finally, there is also a ‘relying on property’ group of around four million householders of all ages who do not have much in the way of savings or income apart from owning their home.
That explanation took 200 words and two paragraphs. It will take longer to settle on the correct policy response, but here is a start:
First, we should incentivise inheritances to go to younger family members. A lifetime tax-free allowance for recipients could start that process. Second, the lifetime effects of inappropriate consumer credit are now there for all to see. Financial regulation should have at its core an individual balance-sheet approach to credit: you should not be able to borrow without a credible plan to pay it back. Third, it must be easier to draw down savings tied up in bricks and mortar. The tiny size of the commercial equity release market compared to the four million cash-strapped homeowners suggests that this is a market that is not working. Perhaps we need a national housing bank to enable people to sell slivers of their property to the taxpayer without having to move home. And should people working hard to pay their rent really be subsidising benefits to low-income homeowners?
Whatever the solutions, starting to think about policy in this way has the potential to engage the population in a much more meaningful debate about inequality in the next electoral cycle than we have seen in the last.
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Kitty Ussher is managing director of Tooley Street Research, chief economic adviser to Portland and a member of the Financial Services Consumer Panel and TheCityUK’s Independent Economists’ Group
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