Means testing State Pension

[CuriousMariette]

Do you think the time has come for this to be introduced? I don’t think the current system is sustainable as many people are living too long. I know it’s not fair and would be political suicide but Pensioner’s didn’t even suffer a 80% furlough during lockdowns. I say this from a place of having “paid in” as people say for 30 years plus already and would likely not receive a State Pension in this scenario.

By all means scrap the tax benefits from higher rate contributions if that's not already happened, but punishing people for contributing to their own retirement so they can have a decent standard of living is grossly unfair.

Taking away tax relief for higher earners would also be grossly unfair. Everybody gets tax relief at the rate of tax they would pay on the income paid into a private pension for a very good reason: the contributions to the pension scheme are tax free for everybody because the whole principle of pension saving is that there is no tax when the money is saved and it is instead taxed when withdrawn. With some advantages like the tax-free lump sum deliberately put in place to encourage people to save as much as possible.

This is also good for the state because taxing the money at the point of withdrawal means that the tax is levied on the capital that has vastly increased due to compound interest.

If you start charging tax on people's pension contributions then you can't justify also taxing them again on the same money when they later make withdrawals from their fund.

This thread demonstrates that no one wants to pay more or lose out so what is the solution?

& no it's not taxing the 0.1%

Increase productivity so that salaries and living standards rise, rather than squabble over an increasingly small cake.

Our productivity is shocking but improving it involves investment in people & infrastructure. You also need to look at the housing market. I'm not sure there really is the appetite to change.

@HootOwl

By all means scrap the tax benefits from higher rate contributions if that's not already happened, but punishing people for contributing to their own retirement so they can have a decent standard of living is grossly unfair.

Taking away tax relief for higher earners would also be grossly unfair. Everybody gets tax relief at the rate of tax they would pay on the income paid into a private pension for a very good reason: the contributions to the pension scheme are tax free for everybody because the whole principle of pension saving is that there is no tax when the money is saved and it is instead taxed when withdrawn. With some advantages like the tax-free lump sum deliberately put in place to encourage people to save as much as possible.

This is also good for the state because taxing the money at the point of withdrawal means that the tax is levied on the capital that has vastly increased due to compound interest.

If you start charging tax on people's pension contributions then you can't justify also taxing them again on the same money when they later make withdrawals from their fund.

I don't think people are saying scrapping all tax relief - they're saying to scrap the higher rate relief, so that everyone gets the same basic rate relief regardless of their income levels.

Your point re tax on pension payments in retirement in partly valid, but not fully, because a higher earner could be saving 40%/45% or even 60% on their pension contributions whilst working, but then only pay 20% basic rate tax in retirement when it comes to drawing down as income. That's not comparable at all. There'll be few pensioners paying 40/45 or 60% tax on their pension income even those previously higher earners!

@monfused

Our productivity is shocking but improving it involves investment in people & infrastructure. You also need to look at the housing market. I'm not sure there really is the appetite to change.

Problem is that we've (politicians that is) have been obsessed with GDP for the past 20 years or so, and the lazy way to increase GDP is by population increase and encouraging spending.

We need brave politicians to reverse that and take the hit of falling GDP. The ideal long term future would be a smaller but better educated/trained and economically active population, but that's not easy to achieve.

@monfused

This thread demonstrates that no one wants to pay more or lose out so what is the solution?

Revolution ?

We need brave politicians

And that's where it stops.

Remind me again, what is plan B ?

Yes @user1497207191 that's what I meant - scrap the higher rate of tax relief on pension contributions, not all of it. I had it in my head that this might have happened already but maybe it was a manifesto pledge instead.

Means-testing the state pension would effectively destroy the whole basis of our welfare state. Punishing people for making provision for their retirement (whilst paying the appropriate % of their pay in NI contributions) would be suicidal for any government.

@VickyEadieofThigh - Australia has a very effective welfare state - with a means tested pension. Which means that welfare goes to those in need and the system is at up. Wry well for people to prepare themselves to fund their own retirement. A welfare state cannot work where everyone gets welfare!

@VickyEadieofThigh

Means-testing the state pension would effectively destroy the whole basis of our welfare state. Punishing people for making provision for their retirement (whilst paying the appropriate % of their pay in NI contributions) would be suicidal for any government.

Not really. Look how this lot have pushed a tax rise and NI rise through and people are fighting each other to vote them back in.

"I would gladly sell my house and all it's contents to help the Tory party" wrote one.

[quote FFSFFSFFS]@VickyEadieofThigh - Australia has a very effective welfare state - with a means tested pension. Which means that welfare goes to those in need and the system is at up. Wry well for people to prepare themselves to fund their own retirement. A welfare state cannot work where everyone gets welfare![/quote]
I'm sure it works well. But the problem with suddenly removing a benefit that people have paid into is that it causes a massive disincentive to those currently working. The social contract of NI in this country (someone referred earlier to the link between the state pension and NI contribution years) isn't something you can rip apart easily.

Moreover, I know people think you don't pay tax on the state pension - but if you have other income, such as a private pension, you pay more tax on it to account for your increased income from the state pension - it therefore sort of IS already means-tested!

A welfare state cannot work where everyone gets welfare!

Of course not but that isn’t what we have now. What any other country does is irrelevant, presumably Australia has always operated that system. We can’t remove a universal entitlement that’s existed for 114 years without complete outcry and it would be political suicide for any party that tried.

Revolution ?

I don't think the English go for that. I'm half French so defo up for it 😆

Your point re tax on pension payments in retirement in partly valid, but not fully, because a higher earner could be saving 40%/45% or even 60% on their pension contributions whilst working, but then only pay 20% basic rate tax in retirement when it comes to drawing down as income. That's not comparable at all. There'll be few pensioners paying 40/45 or 60% tax on their pension income even those previously higher earners!

This is true, it's a very good deal for higher-rate tax payers. Even more playing the system: I've benefited from 40% tax relief on my contributions for most of my working life. I intend to knock off early in my late fifties and draw on the pension straight away. As well as the 25% tax-free lump sum I'll get about £12.5k tax-free each year because I'll have no other income to mop up my personal allowance until the state pension kicks in ten years later. And even the bit that is taxed over those years will be taxed at 20% as you say. I'll do very well out of it in terms of tax saved, the public purse not so much.

There's a very strong case for limiting pension tax relief to basic rate to even things out.

We need brave politicians

and people to vote for them.

@monfused

Revolution ?

I don't think the English go for that. I'm half French so defo up for it 😆

I tend to agree. Which is probably why nothing changes.

Incidentally you get brave politicians when you get brave voters. Everything is intertwined.

Anyone here been a brave voter recently ?

Anyone here been a brave voter recently ?

To be fair, brexit voters were very brave.

In the same way that people who service their own gas boilers are brave

😆

Last chance we had to be brave was to have had a chance at changing the electoral system away from FPTP. Even if what was on offer wasn't perfect it would have started a direction of travel that could have significantly affected where we are not.

Anyway, it seems from other discussions most people are quite happy with where we are. Threads like this are really just a small minority having a village water pump debate.

Anyway, it seems from other discussions most people are quite happy with where we are.

I don't understand why though? I think it's shit & getting shitter & worry for my dc & their generation in general. I'm really not happy.

@monfused

Revolution ?

I don't think the English go for that. I'm half French so defo up for it 😆

We had a revolution first. That's the English bit of me speaking not the Irish bit.

[quote FFSFFSFFS]@VickyEadieofThigh - Australia has a very effective welfare state - with a means tested pension. Which means that welfare goes to those in need and the system is at up. Wry well for people to prepare themselves to fund their own retirement. A welfare state cannot work where everyone gets welfare![/quote]
I'm sure I read that many people blew their savings when this came in in Australia. When was it @FFSFFSFFS ?