Means testing state pension?

waveydavey48

I have a DB pension which starts at age 60 (I'm 57 now) and is worth about £16k per year in today's money and a DC pension pot of about £145k. I'm entitled to a full SP at 67.

My plan was to retire at 60 and use the DC pot (possibly by drawdown?) to supplement the DB pension until age 67 when my SP starts.

Maybe just scaremongering but I've read the SP may be means tested in future. I imagine any government which tried to implement such a policy wouldn't be in power long but it did make me wonder whether I can just blithely assume the SP will be in place in it's present form for the next 30-40 years.

Incidentally are drawdown or an annuity the only real alternatives available to bridge the gap to SP in these circumstances given that I can just deplete it over the 7 years from age 60?

Thanks folks.

westv

No
Never
Won't happen.

xylophone

You could say that those who have a high income in retirement (from private pension/investments etc) are "means tested" to the extent that they may find themselves paying as much or more in tax as they receive from their state pensions......:eek:

zagfles

waveydavey48 wrote: »

I have a DB pension which starts at age 60 (I'm 57 now) and is worth about £16k per year in today's money and a DC pension pot of about £145k. I'm entitled to a full SP at 67.

My plan was to retire at 60 and use the DC pot (possibly by drawdown?) to supplement the DB pension until age 67 when my SP starts.

Maybe just scaremongering but I've read the SP may be means tested in future.

Where have you read it? No credible political party, think tank or organisation is suggesting means testing the state pension as far am I'm aware. It's usually just clueless people on social media. Recent pensions policy has gone the other way.

I imagine any government which tried to implement such a policy wouldn't be in power long but it did make me wonder whether I can just blithely assume the SP will be in place in it's present form for the next 30-40 years.

Anything could happen, the govt could do almost anything, but there's lots they'll do before stealing pensions from people who've earnt them.

Incidentally are drawdown or an annuity the only real alternatives available to bridge the gap to SP in these circumstances given that I can just deplete it over the 7 years from age 60?

Thanks folks.

You could use UFPLS

AnotherJoe

The entire point of the new SP is that it's not means tested and has no add on components which are.

michaels

Whilst means testing may be political suicide simple demographics means that the current arrangement is not 'affordable' forever, the implied tax rates are too high so something will have to give.

arnoldy

A few years ago we would never have imagined that child benefit would be means tested...............


Or that the personal allowance would be 0 for some people.


So I think the presence of a State non-means tested pension is not a given. Especially with a wave of retirees with no DB pensions feeding through in 20 years time and casting themselves onto the State. I suspect it will be addressed by imposition of NI of 10%+ on all income above above SP. So the pretence will be maintained but in reality income above SP will be taxed more heavily than now.

Linton

I cannot see means testing of SP happening. The administration effort to means test what I guess is about 20% of the population would make it impractical. In any case the raising of SPA in line with life expectancy and the ending of the 2.5% minimum annual increase should make it unnecessary. If more government income is required say to pay for the NHS it seems reasonable that relatively wealthy retirees should contribute more. An easy way of implementing it with no impact on the average working person would be to cut the NI rate and increase income tax by the same amount.

jamesd

waveydavey48 wrote: »

Incidentally are drawdown or an annuity the only real alternatives available to bridge the gap to SP in these circumstances given that I can just deplete it over the 7 years from age 60?

Yes. There are variations though. You can do drawdown with UFPLS instead of setting up a specific drawdown account. You can buy term instead of lifetime annuities or a range of annuity-related products.

waveydavey48 wrote: »

Maybe just scaremongering but I've read the SP may be means tested in future.

Some government might do it for those with high income or capital but not at your income level.

It's quite easy to imagine say the current Labour party declaring that "millionaires don't need the state pension". Then wondering if they count defined contribution pots and if they do how or if they work out a corresponding capital value for defined benefit pensions, particularly the public sector ones. How would they adjust DB and annuity wealth for age? Would they ignore DB and make it partly a public vs private sector pension war to please public sector unions? Would they make it south-east vs the rest by including property values? It'd be messy and class war can more easily be waged with say income tax.

A party might say "we expect millionaires to pay for themselves and 25 retired years on average. A million divided by 25 is £40,000 a year so anyone declaring that much income has to pay £8,000 extra income tax to recover £8,000 of state pension."

I don't expect it to happen.

lisyloo

Anything could happen but changes specifically to pensions tend to be done way in advance e.g. private pension access being moved from 55 to 57 in 2028.

Sudden, drastic changes are very unlikely.

Taxation/pension rules changing is a risk which is why some people chose to go into property. Property rules can and have changed but properties are more liquid than pensions.

Apodemus

There is possibly also a risk to changes in treatment of investment income, which might adversely affect retirees. I would see that politically, there is a hierarchy of pots that are “fair game” for increased taxation - DB scheme values at the lowest risk, through DC pots held by pension companies, then on to SIPP pots, S&S ISAs and finally unwrapped investments. In the (common?) scenario where you transfer a DC Pension across to a SIPP, then use drawdown from 55-75 to feed that across to ISA (and perhaps some unwrapped investments), there is a risk of making unreversable changes that increase exposure to future tax changes.