ifs financial resources & well-being carl emmerson & ali muriel institute for fiscal studies

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?


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


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


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


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


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


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


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)


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


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


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


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


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?


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

(%

)


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

ifs financial resources & well-being carl emmerson & ali muriel institute for fiscal studies

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