Means Tested State Pension?

michaels

I had some thoughts and comments:

Main points seem to be:
Full State Pension is worth same as 40 years of contributions at £300pm - most do not pay nearly that much NI and in theory (if it were hypothocated which some seem to believe) it is also supposed to cover other insurance such as unemployment etc

Treasury is having to bail out 'National Insurance Fund' from income/other taxation every year by increasing amounts as NI take is no where near pension benefits paid out and this will rapidly get worse.

State provision compared to many countries is low although once private provision is included overall pensioner GDP share is not so bad.

When PAYG system was introduced life expectancy in retirement was much lower but no adjustment was made as this increased by 17 years between 1940 and 2010.

So I guess my question is - is this piece part of the start of a 'softening up' for the state pension to eventually become means tested? For example Universal Credit is bringing many more benefits into the remit of a capital assessment so perhaps the state pension could also be means tested in this way - or as Paul Lewis suggests, it could be withdrawn at 50k in the same way as child benefit or at 100k in the same way as the personal allowance.

michaels

I can see the removing it like the personal allowance at 100k being a vote winner rather than a vote loser if it was presented as 'soaking the 1% to pay for the NHS/social care - and of course like the 50k (child benefit) / 100k personal allowance thang if you bring it in high then fail to index it with incomes or prices then it doesn't take much inflation for it to start impacting on more and more people without much political pain.

However I can also see that reducing benefits on the way in to pensions brings money in now rather than saving money going out later and so is likely to be much more appealing to politicians who have a max 5 years time horizon. This means that annual allowance, lifetime allowance and 25% TFLS are all more likely to be raided.

ISA pensions with 'uplift' capped at what has been paid in basic rate tax coming soon?

Malthusian

tigerspill wrote: »

No - SP is not a benefit. It is a product we buy as we pay our NI.

Possibly the most spectacular example of getting the right answer by the wrong method I have ever seen. My maths teacher would have had a heart attack.

NI is a tax, and the product it bought was your grandparents' and parents' State Pensions. The State giveth and the State taketh away again.

That said, I don't believe (or, more usefully, consider in my planning the possiblity that) the UK Government willeth take away the State Pension for those earning over a certain threshold. It would annihiliate any hope the Government had of encouraging private saving.

JezR

Means testing the state pension is problematic whist a concept of 'contribution' is still present. If Steve Webb had been more far reaching in coalition changes this could have been swept away in favour of residency as is the case in say Australia and subsequently allow a means test on incomes with a discount placed on money received from pension schemes.

The transition to such a system would be even more messy than the one that has just happened, if existing entitlements were still to be honoured.

The National Insurance Fund was never originally expected to be self-sustaining on employer and employee contributions alone; in the early days the contributions from the general consolidated fund often ran at 20% or more. In effect though these regular transfers were reduced by the continuing escalation in National Insurance rates. When SERPS was introduced the employee rate was 6.5% and employer 10%. Today these are 12% and 13.8% respectively. Slow incomes growth, and more people reaching SPA with entitlement to pensions with significant SERPS/SSP have put that into reverse.

The period of ever increasing surpluses year on year in the NI Fund were the aberration.

SouthLondonUser

Some people here must have a better crystal ball than mine.
The truth is, no one can know what the future holds.

I don’t remember signing a contract with Ms May, nor with her predecessors, confirming that my NI contributions entitle me to anything. Do you? National Insurance is just taxation by another name. Whether you want to call it income tax, social contributions, national insurance or whatever is a purely semantic debate.

Means-testing the state pension is not as inconceivable as some would like to believe. It could definitely happen a few decades from now. It will all depend on what the country will look like then. No politician wants to be voted out by angry voters, but what may be political suicide now might prove popular in the future. If there is a large number of pensioners struggling to get by on meagre pension, and tabloids publish headlines like “state pension paid to multimillionaire movie stars while hard-working families struggle”, I can definitely see some kind of means-testing being put in place.

Note I am not saying it will certainly happen, nor am I attempting to estimate the likelihood – I am just saying it’s not impossible.

AnotherJoe

But such means testing as you hypothesise would (a) be irrelevant if it was millionaires, or indeed anyone earning substantially more than average, since the amounts raised would be so low in terms of making SP "affordable" , amd if the means test was of sufficient "bite" thatbut did make a difference, it would cripple people saving since they'd say what's the point the govt will take it away anyway so I'll spend it now while I can.

Not to mention it wouldn't get far anyway since at that level of impact, no one would vote for the party that put that policy forward.

LHW99

Perhaps the aim will be that autoenrollment pension contributions are gradually increased, giving everyone a basic pot, and then removing the parts of the triple lock, so that gradually it becomes a smaller and smaller part of everyon's retirement income (and Government expenditure) with pension credit available to bring those whose for whatever reason haven't got to some pre-determined income level because their work history hasn't built up their private pot.

SouthLondonUser

? You have never seen policies which are wrong or ineffective put forward?
The 50% tax band raised little to no extra revenue, yet it was implemented anyway.
All I am saying is that it is not inconceivable that a future government, in an unpredictable future, might means-test the state pension. Whether it is political suicide, cunning populism or sensible and fair will depend on what the country will look like decades from now, and on how the policy will be sold to the electorate. People tend to vote based on what they think will benefit them, not on what is fair, after all!

zagfles

michaels wrote: »

I had some thoughts and comments:

Main points seem to be:
Full State Pension is worth same as 40 years of contributions at £300pm - most do not pay nearly that much NI and in theory (if it were hypothocated which some seem to believe) it is also supposed to cover other insurance such as unemployment etc

What makes you think that? Average salary about £27k, ie £2250 a month. NI is 12% employee and 13.8% employer on earnings over £680 a month, which makes £405 a month NI for someone on an average salary.

Treasury is having to bail out 'National Insurance Fund' from income/other taxation every year by increasing amounts as NI take is no where near pension benefits paid out and this will rapidly get worse.

State provision compared to many countries is low although once private provision is included overall pensioner GDP share is not so bad.

When PAYG system was introduced life expectancy in retirement was much lower but no adjustment was made as this increased by 17 years between 1940 and 2010.

So I guess my question is - is this piece part of the start of a 'softening up' for the state pension to eventually become means tested? For example Universal Credit is bringing many more benefits into the remit of a capital assessment so perhaps the state pension could also be means tested in this way - or as Paul Lewis suggests, it could be withdrawn at 50k in the same way as child benefit or at 100k in the same way as the personal allowance.

It would be pointless. So few pensioners earn £50k, and certainly over £100k, it would cost more to administer it than it would save. WHy not just lower the LTA, AA, higher tax on LTA excess, would have similar effect using systems and legislation which already exist.

Malthusian

People tend to vote based on what they think will benefit them, not on what is fair, after all!

Same thing (from the perspective of everyone who has ever used the F word).