State pension shake up could see payments means-tested as older Britons warned 'tough medicine' still to come
Tthere is speculation that the Chancellor may be looking to alter the state pension system
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Older Britons are warned they can't escape "further tough medicine" at the upcoming Budget as speculation arises regarding the possible implementation of a means-tested state pension payment.
Despite cuts to the Winter Fuel Payments already announced, an expert has warned the Government may not stop there as they focus on filling the £22billion black hole in public finances.
The state pension costs the Treasury over £100billion annually – a figure expected to keep on rising.
Before the election, Rachel Reeves insisted that Labour had “no plans” to bring in means-testing for the state pension, however, Sir Edward Troup, a senior advisor has said the Government should consider reducing the entitlement in order to save money.
In terms of what this could mean in practice, a pensions expert explained that this Government – or a future Government – could simply decide that those who have a good workplace pension will get a reduced rate of state pension.
They could also decide that people with relatively large amounts of wealth (such as investments, second homes etc) would receive a reduced rate of payment.
The future government could decide that those who have a good workplace pension will get a reduced rate of state pension
GETTYSir Steve Webb, former pensions minister and partner at pension consultants LCP said: "It would be fair to say that for the UK Government to introduce something like this would be a nuclear option and would make the row over Winter Fuel Payments look like a walk in the park.
"Many people already in retirement would feel very aggrieved if they had planned carefully, perhaps sacrificed income whilst in work to save for a better retirement, only to find out that the 'rules of the game' were changed after it was too late to do anything about it.
"As a result of this, I think it's very unlikely that any move in the direction of means-testing would apply to those already in retirement. Crucially, if the Government recognises that it has to exempt those in retirement or near retirement, it means that they will get no money at all from the policy for many years."
Speculation of a change in the system arose after former HMRC executive, Troup, said: "If the public finances are in a bit of a state, perhaps wealthy pensioners should be giving up their full state pension".
David Blanchflower, a former member of the Bank of England's monetary policy committee, had a similar view earlier this year when he said: "An incoming government is going to have to means-test stuff.
"They are going to have to raise the basic pension a lot for the poor, and probably means-test it".
Although the concept appears to be a simple means of reducing expenses for the Treasury, it is far from that due to the number of problems that could follow the change such as administrative burdens and concerns about equity.
Andrew Gosselin, personal finance expert, and Chief Financial Strategist at The Calculator Site told GB News: "Shifting the pension from a universal to a selected entitlement may lead to a number of problems, including administrative burdens and concerns about equity.
Labour could shift state pension to means tested system as older Britons warned 'tough medicine' still to come
State pension warning: Older Britons can't escape 'further tough medicine' as means-tested system considered
"Pensions will be reserved for people who are judged to need them the most, however, it's not always clear what exactly qualifies as 'need'. It runs the risk of penalizing people who have carefully planned for retirement, which would deter others from following suit.
"This strategy may not address the more serious, fundamental financial issues the public sector is dealing with.
State pensions may not be directly targeted, in the Budget but the Chancellor could target other areas of people's finances.
Webb continued: "Having seen the hostility generated by removing Winter Fuel Payments, it seems to me exceptionally unlikely that the Chancellor would now double down by attacking the state pension itself.
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"This does not, of course, mean that pensioners will necessarily escape some of the further tough medicine we have been promised.
"Wealthier pensioners could well see a tougher regime for things like Capital Gains Tax and/or Inheritance Tax. But my judgment is that raiding the state pension would be seen as a step too far."
Australia has taken on this means-testing model and given a lower state pension to wealthier retirees.
For example, a home-owning couple with net assets – including property – in excess of A$419,000 (£228,000) see their "old age pension" (OAP) gradually reduced, and if net assets exceed A$954,000 they get nothing.