State pension: Pensioner asks ‘who’s going to pay?’
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Yet a leading Tory MP recently suggested the payout should be means-tested, to reduce the burden on UK finances. Pension experts say this would cause chaos if ever implemented.
The state pension costs more than £100billion a year, equivalent of 12 percent of public spending, and will rise as the nation ages.
In a bid to control the cost, Prime Minister Rishi Sunak suspended the triple lock for the current financial year when Chancellor.
We will only know whether the triple lock will be restored when new Chancellor Jeremy Hunt delivers his autumn statement today.
Another way the government is controlling state pension costs by forcing us all to work later, with the retirement age now 66 for everyone.
It will start rising to 67 from 2026, and may rise to 68 from as early as 2037.
Now there’s a terrifying new option on the table.
Means testing the state pension should also be considered, senior Tory backbencher Andrea Leadsom said recently.
Leadsom warned that the Government has “difficult decisions” to make on spending and paying the full state pension to both poor and wealthy needs to be looked at.
Many who are relying purely on the state pension are “really, really struggling” as food and energy prices rise.
“However, there are many wealthy pensioners who own their own home, have got private pensions, who don’t need that triple lock. In my view it may be the time now to start looking at some form of means-testing.”
Leadsom added: “I think the Government should have nothing off the table but these things can’t just be done overnight.”
The idea of means-testing our state pensions was always going to bubble up at some point, as HM Treasury scrambles to control the cost.
It would mean the better off getting less than the poorest, even if they have made the same amount of NI contributions, or even more.
Some may consider that fair but it would pose huge problems.
There isn’t a big pot of cash to pay the state pension. Instead, it is funded by income tax and NI contributions from today’s workforce. That’s a worry as ratio of workers to pensioners will shift dramatically in the years ahead.
In 2016, there were 305 people of pension age for every 1,000 people of working age. By 2042, the same number of workers will have to support 367 pensioners, and the figure will continue to climb after that.
Keeping the state pension affordable is essential, but means-testing is not the way to do it, former Pensions Minister Baroness Ros Altmann told Express.co.uk.
The side-effects would be “disastrous” as there would no longer be any point in workers saving relatively small sums for retirement as they could end up losing state pension as a result, she said. “Only the very wealthy would bother to save for retirement.”
Former Labour Chancellor Gordon Brown tried this kind of change in 2002 when he decided to pay more money to the poorest pensioners, she said. “The result was a collapse in private pension saving.”
Altmann added: “I don’t believe the state pension will or should be means-tested.”
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The state pension must be for all if the system is to work properly, Altmann insisted. “Without a decent basic state pension underpin for everyone, the real risk is that more pensioners will end up poor in retirement and this will damage long term growth for us all.”
Pensions specialist Steve Lowe, group communications director at Just Group, said other countries do have means-tested pensions systems, notably Australia. “Its state pension acts as a safety net for those with lower private pension income.”
Yet that system would not work over here, where average private pension wealth is much lower. “Most UK pensioner households are heavily reliant on benefits income as a result.”
Lowe said this may change if automatic enrolment onto workplace pension schemes helps the majority of people build up sizeable private pensions but added: “That is some way off.”
Means-testing the state pension is a bad idea.
The danger is that if the nation’s finances continue to decline, our increasingly desperate politicians may revive it anyway.
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