Personal Finance

Expert issues warning over 'nightmare' state pension means-testing proposal


An expert has addressed the rising concerns that the new government could introduce a means-testing aspect to the state pension, which would render some people ineligible.

Some have raised concerns with financial experts about the state pension and the possibility of it becoming means-tested like many other state benefits. Currently, anyone who meets the eligibility requirements can access the state pension based on how many years they have paid national insurance, received national insurance credits or made voluntary contributions.

However, a shift to a means-tested benefit would take into account an individual’s savings and income before offering them the pension. This could likely result in people with high income or substantial savings becoming ineligible for the benefit.

Understandably, this has instilled fear in many people who are saving up for a comfortable retirement or nearing the state pension age with less opportunity to adjust to these potential changes. However, Becky O’Connor, Director of Public Affairs at PensionBee, had some reassuring insights for Express readers.

The pension guru highlighted the complexities of means-testing the state pension, stating: “Means-testing the state pension is occasionally mentioned as a way to make it more sustainable, so it can continue to be offered for years to come. However, it seems the most unlikely option because it would be extremely hard and controversial to implement.”

“One reason there is perhaps even more controversy over the prospect of means-testing the state pension than other benefits is that it might appear to penalise those who have worked hard and built up a decent income and savings. The prospect of losing state pension entitlement could act as a strong disincentive to save for oneself or even work up to your mid-sixties.

“It could also be a logistical nightmare. Working out where to set the boundaries of wealthy and not wealthy and the kinds of assets that would be considered would be extremely challenging, particularly given different wealth levels around the country.”

Becky then outlined the thorny issue of introducing means-testing, which she believes would be “fraught” at best, drawing parallels with the controversial rise in the state pension age that led to the formation of the WASPI campaign.

She added: “People go through working life with an assumption of when they will get the state pension and how much this is likely to be for them, so changes along the way can have profound implications for retirement planning and also outcomes.”

The expert issued a stark warning about the potential impact of means-testing the state pension, cautioning: “There would undoubtedly be some who could lose out significantly from this kind of change. Discussions around fairness and inequality would take centre stage. There could be a whole new WASPI-style campaign for the Government to manage.”

She further explained that there are other measures to ensure the sustainability of the state pension, such as incrementally raising the state pension age. The current state pension age is 66 and is on track to hit 68 by 2046.

Another option on the table is altering or abolishing the triple lock guarantee. This commitment ensures that the state pension increases annually by whichever is highest among inflation, average earnings growth, or 2.5%.

Becky elaborated on the dilemma, stating: “These are the two other levers to pull to ensure there continues to be a state pension for all, in perpetuity. None are welcome, but means-testing, for a large proportion of workers, may seem like the most concerning.”



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