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

2. © Institute for Fiscal Studies, 2008 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. © 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

4. IFS Income Poverty

5. © Institute for Fiscal Studies, 2008 Poverty Rates in ELSA Poverty Line: £120.94£129.66£139.44

6. © Institute for Fiscal Studies, 2008 Factors associated with income poverty (2002/03) – family type

7. © 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

8. © Institute for Fiscal Studies, 2008 Persistence of Poverty

9. © Institute for Fiscal Studies, 2008 Transitions into/out of income poverty

10. © 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)

11. © 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

12. IFS Wealth

13. © Institute for Fiscal Studies, 2008 Total wealth by age

14. © Institute for Fiscal Studies, 2008 Wealth changes, wave 1 to wave 3

15. © Institute for Fiscal Studies, 2008 Wealth change, wave 1 to wave 3, by age

16. © 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?

17. © Institute for Fiscal Studies, 2008 Total wealth in excess of the Inheritance Tax threshold (panel)

18. © 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

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