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Financial resources & well-being

Financial resources & well-being. Carl Emmerson & Ali Muriel Institute for Fiscal Studies. Outline. Income poverty Income poverty rates & persistence What is correlated with income poverty? Transitions into/out of income poverty Wealth over the life cycle

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Financial resources & well-being

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  1. Financial resources & well-being Carl Emmerson & Ali Muriel Institute for Fiscal Studies

  2. Outline Income poverty • Income poverty rates & persistence • What is correlated with income poverty? • Transitions into/out of income poverty Wealth 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?

  3. 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

  4. Income Poverty

  5. Poverty Rates in ELSA £120.94 £129.66 £139.44 Poverty Line:

  6. Factors associated with income poverty (2002/03) – family type

  7. 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

  8. Persistence of Poverty

  9. Transitions into/out of income poverty

  10. 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)

  11. 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 risk Persistence: • More than half of pensioners in income poverty in one ELSA wave are still in poverty in the next wave Transitions: • Losing partner & leaving work associated with significantly higher risk of entering poverty • Reaching SPA reduces risk of entering poverty, increases chances of leaving poverty

  12. Wealth

  13. Total wealth by age

  14. Wealth changes, wave 1 to wave 3

  15. Wealth change, wave 1 to wave 3, by age

  16. 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?

  17. Total wealth in excess of the Inheritance Tax threshold (panel)

  18. 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

  19. Financial resources & well-being Carl Emmerson & Ali Muriel Institute for Fiscal Studies

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