Is Means Testing the Solution for Pensions

Many of us just assume, don’t we?

As we approach retirement age in the UK – a date that always seems to keep a year or two ahead - we assume what’s due is coming to us. At last.

Like many people, I was surprised to learn the UK state pension is a benefit, not an automatic right. It’s available provided you hit the minimum contribution threshold and provided you claim it.

There’s a powerful argument to suggest that state pensions could metamorphose. The argument rests on its status as a crucial retirement component — a building block. Basically, we’re supposed to make our own provision and then top up.

The UK workplace pension participation rate was 80% (22.3 million) in 2023; the year previous was 79% (22.1 million) according to the DWP (July 2024). So, it’s not as though no-one’s doing anything about their personal circumstances. But we’re still well short in the national kitty for paying out benefits.

In the 1950s, the average retirement ages (not pension ages) were 63 for women and 67

for men. Despite rising life expectancy, the retirement age is now a little earlier than in 1950 – men at around 65 and women at 63 (average).

The population will have increased by a staggering 20% (50 million to 70 million) come next year. The pension age will rise from 66 to 67 between 2026 and 2028, but spending on state pensions will surge over the next 50 years.

All this is against a backdrop of a falling working population. Something has to give – not just with the state pension, but across the board.

So, while I was appalled at the speed at which this government ended the winter fuel allowance, I wasn’t surprised by the cut. The government’s big mistake was a rather heartless and heavy-handed ‘now’s as good a time as any’ approach.

The problem with sending everyone already on a state pension a few hundred quid is that people who didn’t need it received it. (Mind you, the situation was not as barmy as the so-called Christmas bonus for pensioners.)

Fuel allowance for all, along with a tenner at Christmas, is taxpayer extravagance gone daft. Direct that money to those most in need. That’s neither left nor right-wing thinking – just a sense of fairness.

We must cut through the political tit for tat. Posturing and tweaking policies will not tackle the fundamentals. The system will have to change, so can someone please be big enough to deal with it rather than playing to the gallery? It’s about far more than losing votes.

Several questions demand immediate answers.

Will the pension age be raised again soon? Many commentators suggest 70 as a workable minimum. How high will it go? Longevity forecasts have slowed somewhat, so pushing it much beyond 70 is likely to create a furore.

Will the triple lock safety net end soon? I’d be astonished if it doesn’t. While it’s a wonderful idea, it’s expensive, more so during times of inflation. And with the UK’s current economic state and unstable global politics, inflation is likely.

Will it be means tested? I think that’s also likely. Paying out benefits to everyone, regardless of need, is not viable.

Can we afford not to means test the pension system? History may well repeat itself - full circle, to the first legislation for pension benefits back in 1908 (The Old Age Pensions Act).

It set a minimum age of 70 years and claims were means-tested.