IFS
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
• 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
© Institute for Fiscal Studies, 2008
IFS
Income Poverty
Poverty Rates in ELSA
Poverty Line: £120.94
£129.66
£139.44
35%
30%
25%
20%
15%
10%
5%
0%
2002/03
All ELSA
© Institute for Fiscal Studies, 2008
2004/05
Fifty to SPA
2006/07
SPA plus
Factors associated with income
poverty (2002/03) – family type
0%
In couple
Men
Women
Never married
Men
Women
Divorced/
separated/
widowed
Men
Women
© Institute for Fiscal Studies, 2008
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
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
60%
50%
40%
30%
20%
10%
0%
Wave 1 - 2
All ELSA
© Institute for Fiscal Studies, 2008
Wave 2 - 3
Fifty to SPA
All 3 Waves
SPA plus
Transitions into/out of income
poverty
-20% -18% -16% -14% -12% -10% -8% -6% -4% -2% 0%
In couple
Men
Women
Never married
Men
Women
Divorced/
separated/widowed
Men
Women
Into Poverty
© Institute for Fiscal Studies, 2008
Out of Poverty
2%
4%
6%
8% 10% 12% 14%
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 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
© Institute for Fiscal Studies, 2008
IFS
Wealth
Total wealth by age
300,000
2002-03 median
2004-05 median
2006-07 median
Total wealth (£)
250,000
200,000
150,000
100,000
50,000
0
50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80
Age
© Institute for Fiscal Studies, 2008
Wealth changes, wave 1 to wave 3
0.8%
Total wealth
0.7%
Non-housing wealth
Density
0.6%
Non-housing wealth
among those with housing
0.5%
0.4%
0.3%
0.2%
0.1%
0.0%
-200
© Institute for Fiscal Studies, 2008
-100
0
100
200
300
Percentage change
400
500
600
Wealth change, wave 1 to wave 3,
by age
Total wealth
Non-housing wealth
Median change in wealth (%)
60
50
40
30
20
10
0
-10
-20
-30
50
52
54
56
58
60
62
64
Age
© Institute for Fiscal Studies, 2008
66
68
70
72
74
76
78
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)
Wealth above inheritance tax
threshold (%)
16%
14%
12%
10%
8%
6%
4%
2%
0%
50
52
54
56
58
60
62
64
Age
© Institute for Fiscal Studies, 2008
66
68
70
72
74
76
78
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
© Institute for Fiscal Studies, 2008
IFS
Financial resources & well-being
Carl Emmerson & Ali Muriel
Institute for Fiscal Studies