Just for interest...(none political)....ifMeans testing SP, what minimum income level would you set?

Simes122

The problem in my view is far too many people have actually been exempted from contributing to what is a broadly applied benefit.   I’d advocate broadening the ni base at the lower end!  Far too many just don’t contribute (enough) at all.  Including self employed etc.

Means testing of a contributory universal benefit would be in many cases effectively be retrospectively increasing tax paid over a lifetime of work, while removing any benefit for having contributed in the first place - how to break a social contract!

higher income taxpayers in retirement are already giving back any/some state pension through taxation.  

michaels

Simes122 said:

The problem in my view is far too many people have actually been exempted from contributing to what is a broadly applied benefit.   I’d advocate broadening the ni base at the lower end!  Far too many just don’t contribute (enough) at all.  Including self employed etc.

Means testing of a contributory universal benefit would be in many cases effectively be retrospectively increasing tax paid over a lifetime of work, while removing any benefit for having contributed in the first place - how to break a social contract!

higher income taxpayers in retirement are already giving back any/some state pension through taxation.  

Some of my state pension is from serps/s2p contributions which I could have contracted out and now they are to be entirely ocnfiscated?!

cfw1994

Stubod said:

..thanks for all our comments so far....I didn't think for one minute this would go to 5 pages!

I don't accept it would be "difficult", or would necessarily cause "riots", (this would very much depend on the "income" level set. ie if it where based on (say) £50k per person then the majority would not be effected (??)). 

Regarding "complexity", well yes, there may be a small percentage of people that this could apply to, but again probably not the majority, and if it's that complex how does the existing taxation system cope with it??

My (simplistic) assumption was that (for example), an income limit of (say), £50k per person would get no SP, and anything less would be topped up to this limit up to a maximum of (whatever) the SP was at the time....(and I accept that nothing is that simple when it comes to declaring an annual income, although I assume that is how your current tax is calculated anyway??)

 

That sounds a dangerously simplistic view 🧐
So how do you feel about people who have done their sums for their years of retirement to include an anticipated SP based on their 36-40 years of NI contributions?
That because they included it to reach a sum of, oh, let’s say £50k….now being told that “no, your contributions will not count, so sorry”.  

After all their years of contributing.
That feels VERY wrong to me 👀

Or do you mean they might announce that for people just starting work, to set expectations for them in around 40-50 years ahead?   Which could be done, but would be a massive change to the entire pension landscape.

It feels like a great way for any Government to become a single term Government 🤷‍♂️

Pensions are extraordinarily long term things to plan for.  

People who ARE pensioners, or indeed, who are planning for their pensions after many years contributing NI, surely cannot have the carpet pulled from under their feet?

Sure, examine and tweak the “triple lock”….although even that was brought in to protect the income for those who broadly have no means to affect their own.

Ultimately, the State Pension is part of taxable income.  

Those who have other sources of income will end up paying tax on their State Pension.  The precise amount depending on where they sit in the income spectrum.

I don’t believe that suddenly making it a means-tested benefit is something any Government should do. 

Qyburn

cfw1994 said:

Or do you mean they might announce that for people just starting work, to set expectations for them in around 40-50 years ahead?   Which could be done, but would be a massive change to the entire pension landscape.

A measure that would bring a huge amount of bad publicity immediately, but wouldn’t give any return for 40 or 50 years. Current government gets the blame, a future government gets the benefit.

OldScientist

According to the OBR (https://obr.uk/forecasts-in-depth/tax-by-tax-spend-by-spend/welfare-spending-pensioner-benefits/), direct pensioner welfare (state pension, pension credits) currently totals about £138 billion (i.e. just over 10% of government spending - in addition a significant fraction of NHS spending is also directed to those of pension age). Assuming increases in longevity continue (and that is not a given), then the fraction of the population who are pensioners will increase and the cost to provide the state pension, as a fraction of government spending, will increase. It is worth noting that Japan, who are ahead of us in this aspect, have struggled to grow their economy as their population has aged.

One solution is to raise the pension age - we have already seen this phased in.

A second solution is, as this thread suggests, is to means test the pension. However, if the 'cap' is set too high, then it will affect very few people and save little money. If it is set too low, then the incentive for those below the cap to save for old age is diminished.

A third solution is to provide a supplementary alternative to the state pension. A state backed collective defined contribution scheme (these fall somewhere between a DC and a DB pension, see https://commonslibrary.parliament.uk/research-briefings/cbp-8674/) might form a one such alternative. Retirement income is less dependent on luck than a DC pension, but less expensive to provide than a DB pension.

michaels

OldScientist said:

According to the OBR (https://obr.uk/forecasts-in-depth/tax-by-tax-spend-by-spend/welfare-spending-pensioner-benefits/), direct pensioner welfare (state pension, pension credits) currently totals about £138 billion (i.e. just over 10% of government spending - in addition a significant fraction of NHS spending is also directed to those of pension age). Assuming increases in longevity continue (and that is not a given), then the fraction of the population who are pensioners will increase and the cost to provide the state pension, as a fraction of government spending, will increase. It is worth noting that Japan, who are ahead of us in this aspect, have struggled to grow their economy as their population has aged.

One solution is to raise the pension age - we have already seen this phased in.

A second solution is, as this thread suggests, is to means test the pension. However, if the 'cap' is set too high, then it will affect very few people and save little money. If it is set too low, then the incentive for those below the cap to save for old age is diminished.

A third solution is to provide a supplementary alternative to the state pension. A state backed collective defined contribution scheme (these fall somewhere between a DC and a DB pension, see https://commonslibrary.parliament.uk/research-briefings/cbp-8674/) might form a one such alternative. Retirement income is less dependent on luck than a DC pension, but less expensive to provide than a DB pension.

There was a supplementary state pension called SERPS and then S2P - I contributed towards this (rather than contracting the payments out into a private pension) and then the government confiscated the benefit from me when they did the last set of state pension reforms so I am a bit wary now....

af1963

Qyburn said:

cfw1994 said:

Or do you mean they might announce that for people just starting work, to set expectations for them in around 40-50 years ahead?   Which could be done, but would be a massive change to the entire pension landscape.

A measure that would bring a huge amount of bad publicity immediately, but wouldn’t give any return for 40 or 50 years. Current government gets the blame, a future government gets the benefit.

Exactly this, which is what makes it so unlikely to happen.  If you want the savings in the immediate future you'd need to impose it with hardly any notice, and guarantee your defeat at the next election.

Qyburn

michaels said:

There was a supplementary state pension called SERPS and then S2P - I contributed towards this (rather than contracting the payments out into a private pension) and then the government confiscated the benefit from me when they did the last set of state pension reforms so I am a bit wary now....

Did they? I understood that people kept any extra entitlement they'd accumulated before the change. I have, unless the forecast is wrong my State Pension will be more than the full NSP. Much more than the Basic State Pension, which would be the benchmark if they hadn't made the change.

hugheskevi

Qyburn said:

michaels said:

There was a supplementary state pension called SERPS and then S2P - I contributed towards this (rather than contracting the payments out into a private pension) and then the government confiscated the benefit from me when they did the last set of state pension reforms so I am a bit wary now....

Did they? I understood that people kept any extra entitlement they'd accumulated before the change. I have, unless the forecast is wrong my State Pension will be more than the full NSP. Much more than the Basic State Pension, which would be the benchmark if they hadn't made the change.

They pretty much did 'confiscate' it for those not close to retirement and especially those who had not accrued State Pension above the rate of new State Pension.

The accrued amount was honoured, so those very close to retirement were fine. But for those further away, although the accrued amount was honoured, this meant they reached the cap of the standard amount of new State Pension much more rapidly than they would have done had they contracted-out and not accrued SERPS/S2P. After reaching the full rate of new State Pension, no more entitlement is accrued despite still having to pay the full rate of National Insurance.

Technically nothing was confiscated - the individuals receive their entitlement, they just don't build up any further entitlement after reaching the full rate of new State Pension.

kimwp

If state pension were means tested, wouldn't it basically mean getting rid of state pension and leaving behind pension benefit?