ifs financial resources & well-being carl emmerson & ali muriel institute for fiscal studies
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IFS
Financial resources & well-being
Carl Emmerson & Ali Muriel
Institute for Fiscal Studies
© Institute for Fiscal Studies, 2008
Outline
Income poverty• Income poverty rates & persistence• What is correlated with income poverty?• Transitions into/out of income povertyWealth over the life cycle• Growth in wealth from Wave 1 to Wave 3
– Did beneficiaries of housing boom ‘run down’ other sources of wealth?
• What fraction have wealth in excess of Inheritance Tax threshold?– Is this fraction declining with age?
© Institute for Fiscal Studies, 2008
Measurement
Income/poverty• ‘Family’ (benefit unit) income from all sources• Net of taxes and benefits• Poverty line – 60% of UK median family income
Wealth• Includes financial, physical and housing wealth• Net of any mortgage debt• Excludes wealth held in state and private pensions
IFS
Income Poverty
© Institute for Fiscal Studies, 2008
Poverty Rates in ELSA
0%
5%
10%
15%
20%
25%
30%
35%
2002/03 2004/05 2006/07
All ELSA Fifty to SPA SPA plus
Poverty Line: £120.94 £129.66 £139.44
© Institute for Fiscal Studies, 2008
Factors associated with income poverty (2002/03) – family type
0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%
Men
Women
Men
Women
Men
Women
In couple
Never married
Divorced/ separated/widowed
© Institute for Fiscal Studies, 2008
Factors associated with income poverty
Labour market status – Substantially higher risk of income poverty if you/your
partner not in labour force
Above State Pension Age– Lower risk of income poverty (controlling for other
factors)
Education– Graduates face lowest risk of income poverty
© Institute for Fiscal Studies, 2008
Persistence of Poverty
0%
10%
20%
30%
40%
50%
60%
Wave 1 - 2 Wave 2 - 3 All 3 Waves
All ELSA Fifty to SPA SPA plus
© Institute for Fiscal Studies, 2008
Transitions into/out of income poverty
-20% -18% -16% -14% -12% -10% -8% -6% -4% -2% 0% 2% 4% 6% 8% 10% 12% 14%
Men
Women
Men
Women
Men
Women
Into Poverty Out of Poverty
In couple
Never married
Divorced/ separated/widowed
© Institute for Fiscal Studies, 2008
Transitions into/out of income poverty
Labour market status– Moving into labour force associated with increased
probability of leaving poverty (18ppt)
– Moving out of labour force probability of entering poverty (21ppt)
Reaching State Pension Age– Associated with increased chance of leaving poverty
(17ppt)
© Institute for Fiscal Studies, 2008
Income poverty - summary
Trends:• Fell between 2002-03 and 2004-05• ... but unchanged between 2004-05 and 2006-07• Divorced, separated and widowed women at greatest riskPersistence:• More than half of pensioners in income poverty in one ELSA
wave are still in poverty in the next waveTransitions:• Losing partner & leaving work associated with significantly
higher risk of entering poverty• Reaching SPA reduces risk of entering poverty, increases
chances of leaving poverty
IFS
Wealth
© Institute for Fiscal Studies, 2008
Total wealth by age
0
50,000
100,000
150,000
200,000
250,000
300,000
50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80
Age
To
tal w
ea
lth (
£)
2002-03 median
2004-05 median
2006-07 median
© Institute for Fiscal Studies, 2008
Wealth changes, wave 1 to wave 3
0.0%
0.1%
0.2%
0.3%
0.4%
0.5%
0.6%
0.7%
0.8%
-200 -100 0 100 200 300 400 500 600
Percentage change
Den
sity
Total wealth
Non-housing wealth
Non-housing wealthamong those with housing
© Institute for Fiscal Studies, 2008
Wealth change, wave 1 to wave 3, by age
-30
-20
-10
0
10
20
30
40
50
60
50 52 54 56 58 60 62 64 66 68 70 72 74 76 78
Age
Me
dia
n c
ha
ng
e in
we
alth
(%
)
Total wealth
Non-housing wealth
© Institute for Fiscal Studies, 2008
Inheritance Tax
• Fraction of estates paying Inheritance Tax (from administrative data):– 2.3% in 1996–97– 5.9% in 2005–06
• Yet 11.8% of individuals aged 50+ in ELSA have total wealth above Inheritance Tax Threshold
• Are individuals running down their wealth as they approach the end of their lives?
© Institute for Fiscal Studies, 2008
Total wealth in excess of the Inheritance Tax threshold (panel)
0%
2%
4%
6%
8%
10%
12%
14%
16%
50 52 54 56 58 60 62 64 66 68 70 72 74 76 78
Age
We
alth
ab
ove
inh
eri
tan
ce t
ax
th
resh
old
(%
)
© Institute for Fiscal Studies, 2008
Wealth - summary
• Wealth distribution shifted strongly upwards between Wave 1 & Wave 2– Less movement between Waves 2 & 3
• Total wealth growing strongly (on average) between Wave 1 and Wave 3
• Non-housing wealth little changed (on average)– Not falling for those with housing wealth
• Little sign of age profile in wealth accumulation• Fraction with wealth above IHT threshold appears to
be climbing with age– However, housing market declines may reverse this pattern
IFS
Financial resources & well-being
Carl Emmerson & Ali Muriel
Institute for Fiscal Studies
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