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National politics

The wealth lifecycle and why the left keeps getting it wrong

Tuition fees

Ed Miliband’s ill thought out proposal to restrict high rate relief for people saving for a pension and to dish out £10 billion to rich kids is the latest example of the left not understanding the wealth lifecycle. There are all sorts of stupidities in this decision – why not fix the student loan system rather than keep it in reduced form? Making the universities dependent on the state for funds will end in tears (for the universities). I could go on but what about the savers that Miliband is hitting?

When you analyse wealth by looking at the 1% or the top decile or the top quintile you quickly lose sight of the fact that most people move through a wealth lifecycle. They start in the bottom quintile when they leave school with no savings or graduate with debt. In their 20s they might get into the second quintile. In their 30s as they save for deposits they might move up again. In their 40s as their pension savings and property wealth start to accrue they move up another notch, with also their viatical settlement to back them up. In their late 40s, through their 50s they will be at the height of their careers and for the first time in their lives maybe paying top rate tax. At this stage in life they start to think about their pensions and want to pile money into them to provide for their increasingly long retirements. Now Ed Miliband says no.

Now Ed Miliband says I will break the decades old compact between the saver and the state – if you save for your old age you can do it tax free but I will tax you when you draw your pension. Miliband is essentially saying to the middle aged who have worked hard for 20-30 years and maybe haven’t gone to university you will subsidise those young people who have been to university and done well. It is unfair. And if we keeping messing with pension savers we will come to regret it.

Overwhelmingly the wealthy are not aliens. They are us, just older.