State pension at tipping point as means testing seen as 'ONLY viable option' to secure future of payments

Means testing may now be the only viable option to rein in costs and protect future public finances, according to personal finance platform Mouthy Money.

The state pension currently accounts for 46 per cent of the Department for Work and Pensions' annual spending. This represents £124.1 billion out of a total DWP budget of £267.3 billion for 2023/24.

By 2029/30, this figure is expected to hit £169.4 billion, a 143 per cent increase since 2010/11.

Unlike other forms of welfare, the state pension is not means tested. Instead, it's based on National Insurance contributions. That means wealthy pensioners receive the same payments as those who may rely on it as their sole source of income.

Edmund Greaves, editor of Mouthy Money said: "Significant numbers of pensioners in receipt of the state pension simply do not need it.

"According to the ONS’s latest household wealth survey, 49 per cent of over-65s in the UK have a net worth of at least £500,000, and 22 per cent have over £1 million."

Greaves argues that, despite past efforts to make the pension system more affordable—such as raising the state pension age and equalising retirement ages between genders—the Government has consistently avoided the issue of means testing.

He added: "It has never been brave enough to consider means testing. That is now the only viable option to prevent the burden on taxpayers from spiralling out of control."

Greaves also suggests that the true wealth of older households may be even higher than official figures show, warning that government data could be underestimating pensioner wealth by “trillions of pounds.”

“Former Governments have taken steps to make the state pension bill cheaper,” he adds, pointing to measures such as raising the State Pension age and equalising it between men and women.

“But they’ve consistently avoided the question of means testing,” Greaves said. “That’s the conversation we need to start having.”

The platform argues that more fundamental reform is needed, going beyond the incremental changes made in recent years.

Greaves points out that the state pension is approaching a historic “inflection point”, as payments are set to exceed the income tax personal allowance for the first time.

From April 2025, the full new State Pension is projected to rise to around £11,502 per year (based on the estimated 8.5 per cent Triple Lock increase), while the income tax personal allowance remains frozen at £12,570. This means many pensioners will start creeping closer to the tax threshold, and for those with any additional income, part of their state pension could be taxed.

Greaves explains: "From next year, the Government could begin clawing back a portion of state pension payments through the income tax system." However, he warns this shift could result in an uneven impact across the population.

He added: "The poorest pensioners with no access to financial advice now face being taxed on their state pension income. Meanwhile, well-off retirees can simply move money around to avoid additional tax liabilities” through the use of ISAs, private pensions, and other tax-efficient tools.

This growing divide, Mouthy Money argues, shows that tweaks around the edges are no longer enough. Greaves concludes that the Government must look beyond current debates about the Triple Lock or minor pension age adjustments, and seriously consider means testing to ensure the system remains fair and financially sustainable."

Instead of distracting arguments such as scrapping the Triple Lock or more tweaks to State Pension age, it is time for the Government to seriously begin considering how it can means test the State Pension," he says.

The Mouthy Money editor believes this approach is essential to ensure the pension budget "is put onto a sustainable footing."

Without means testing, the platform warns that the growing pension bill will continue to place increasing pressure on public finances.