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.

@pradavilla

I'd say yes but at a high threshold. Like say anyone who has income of £50k+ per year clearly doesn't need a state pension on top!

It’s not about need. And anyone with an income of £50k will be handing 40% of their state pension straight back anyway.

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.

Everyone does get the same in the current system: they can pay into their pension fund tax free from gross earnings. Obviously that means "relief" at a higher rate for taxpayers who pay tax at a higher rate, because they pay more tax in the first place!

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!

And many basic rate taxpayers who received 20% tax relief on contributions will pay nothing on withdrawals because they won't withdraw more than the personal allowance each year. Should we take away their 20% relief on contributions as well? You can't have it both ways.

And as I said, these differences are substantially compensated for by the fact that by taxing at the point of withdrawal, the Government levies tax on a far higher total amount of capital than it would if it taxed contributions instead.

The other point is that when making pension contributions you have no way of knowing what the tax thresholds and rates will be in several decades when you will be making withdrawals. It seems fairly likely they'll be less favourable than now, for all the reasons discussed in this thread. So if you start taxing people on their contributions to pensions, the incentive to save that way pretty much dissolves: it becomes a very risky bet. People would I expect largely just pay tax on the money now, take it as earnings and invest it in tax efficient non-pension savings, at which point the Government have no future income from it which will make the overall tax position even worse when those people eventually retire.

[quote user1497207191]@Lockdownbear

It is also when they had YTS schemes and kids working for two years for a pittance.

I appreciate "some" employers took advantage of cheap labour, but it worked very well for a lot of youngsters who got their first feet on the employment ladder, got valuable work experience, got on the job training, etc.

One of my closest friends left school with barely any qualifications, and got a place on a YTS scheme at the local chamber of commerce doing menial filing, tea making, etc. She impressed and got taken on full time, did various training courses etc and got regular promotions over the years. She's currently the managing director of that same Chamber of Commerce. She often says she owes her career to the YTS scheme![/quote]
The YTS was also beneficial as it got young people into jobs and gave the, opportunities not loads of debt for doing the same job

@Lockdownbear

Another issue with means testing is how do you value what people have in investments ISAs, and other shares.

Not to mention it becomes a disincentive for people to down size their property. If it means they then loose out on pension because they then have too much money in the bank

This is exactly what happened to a friend of mine here in Australia. In addition to estate agent fees, costs of removals, and inevitable repairs to the new property, she’s had her pension cut.

As an aside, the house is further away from all amenities and her circle of immediate friends. As is often the case in downsizing, it’s hard to stay in the old area.

@onlychildhamster

my FIL had no pension as he didn't work for most of his life. He did however get 100K from my MIL when they divorced (for his share of the house). He was living with his parents for a while but now has moved to Thailand (and has a Thai wife). I have met him once when he flew back to see his dying mum. He is very happy and lives in a large house in Chiang Rai with a rescue duck, pet dogs as well as his wife's family. There are cafes there and beautiful nature and temples. He doesn't speak Thai at all, his wife speaks very basic English. I don't think there is any place in the UK where he could have such a retirement for 100k and zero pension.

Would that be an option for many Brits? As long as you have £17k in your bank account and are over 50, you can qualify for a retirement visa. I get that if you have kids, that would be less of an option. my FIL had 4 kids but most of them aren't on good terms. But perhaps for childless retirees or retirees whose children have emigrated, that may be more common. I think many people in my generation (I am in my 20s) wouldn't have kids and I am only planning on 1 child. I actually think the chance of my child staying in Uk is quite slim...

The Best Marigold Hotel?

@DGRossetti

The English haven't had a revolution. The civil war was just a lot of posh boys arguing over who gets to stay up after lights out. Unfortunately it dragged in the rest of Britain (sorry about that).

I think Charles I found them revolting.

@MorningStarling

My preference would be to put a cap on private pensions and use that to fund a better state pension. No pensioner should be raking in more than 20k per year. Any annuity or drawdown from a private pension above this should be confiscated.

Alternatively/also you could have a rule whereby state pensions are only provided to top up whatever someone has earned in a private pension. So if someone retires with a private pension which can buy an annuity of £100 per week, this gets topped up by the state to state pension levels. Again, it would be a good idea to have a maximum private pension level, it's offensive that a pensioner could have an income higher than the average working person after tax.

OFFENSIVE !!!!!!!!!! how DARE you say that - and to confiscate something that someone has paid in for maybe going without when they were working is a nasty mean thing to say, I am still working but when I stop my state and private pensions will be lower than 20k which is why I am putting my state pension (less the 200 a month I pay in extra tax on my wages that's £200 a month more than the tax and NI I paid when I was working age BTW in case you start whining that I don't pay NI anymore) so I have savings to top me up, want to take that away from me as well as its OFFENSIVE do you? seriously???? I really have no words that expresses my total and utter contempt for your views.

meant to say putting my state pension into my savings account

My preference would be to put a cap on private pensions and use that to fund a better state pension

How would you do that?

My preference would be to put a cap on private pensions and use that to fund a better state pension

Would you also put a cap on anyone saving money?

How on earth can you stop someone financial planning for their future?

How is it offensive for a pensioner who has saved and planned for retirement.....to have access to it? How do they become 'not entitled' to their own money once they hit a certain age?

Are you stopping investments as well? And sort of financial planning? For everyone?

Or do you just have a problem with the over 65s?

And then if you did this, who would pay into a private pension? Why would I put loads of money into my pension, as an example, if it was going to benefit me?

I'm reading the post that those, for example, Alan Sugar, who would automatically receive state pension and don't need it will not receive
it.

It does seem absurd that he receives state pension and a winter fuel payment.

@user1497787065

I'm reading the post that those, for example, Alan Sugar, who would automatically receive state pension and don't need it will not receive it.

It does seem absurd that he receives state pension and a winter fuel payment.

It might seem absurd but for the relatively few Alan Sugars it's not worth the cost of means testing everyone. But remember he'll be paying a hefty income tax on it so a huge chunk will be going straight back to HMRC. Think how much employment the Alan Sugars create for other people. Do you want them to disappear of to other countries?

To the poster who wants to cap pensions. You do understand that when someone decides to start drawing down on their pension they have options like taking a lump sum, out too so by your suggestion they are as well to take the maximum lump sum and leave themselves with the minimum pension.
Intact it's not even worth saving for a pension if your not going to be any better of than the people who don't.

Think things through before making stupid suggestions.

For everyone getting offended, going on about how they have "paid in", what will we do when the money runs out? Because it will. Probably within your lifetimes. I'm working on the assumption that when I retire, I wont get a state pension. My parents are retiring soon, I think its ambitious to assume there will be a state pension for their entire retirement.
NI isn't a saving account. That's not how it works. What you paid in, is long spent. Current retirees are funded by current workers. With an aging population, and rising cost of living it will be impossible to sustain.

@roseky

For everyone getting offended, going on about how they have "paid in", what will we do when the money runs out? Because it will. Probably within your lifetimes. I'm working on the assumption that when I retire, I wont get a state pension. My parents are retiring soon, I think its ambitious to assume there will be a state pension for their entire retirement. NI isn't a saving account. That's not how it works. What you paid in, is long spent. Current retirees are funded by current workers. With an aging population, and rising cost of living it will be impossible to sustain.

They won't run out. Get past the Australian context, it's the same in the UK. And if that doesn't wash for you, consider how this government has just written off a £4.3b covid business loan fraud.

Clue: it's because they want to.

Enjoy:

For everyone getting offended, going on about how they have "paid in", what will we do when the money runs out?

Money can never "run out". It's a made up concept. Just print as much as you like.

Part of the problem with .... well everything today is the obsession with using money as a proxy for worth. It's why essential roles like carers are paid shit, while "high powered" roles are paid in multiples of tens if not hundreds of those roles.

And if the government doesn't want to print more money it can just revalue it while it's in your pocket. Which has happened.

Give it to everyone then tax income which includes pension - scrap the NI - just call it income tax. So rich or poor? Working or not working - you receive tax on your income.

@DGRossetti

For everyone getting offended, going on about how they have "paid in", what will we do when the money runs out?

Money can never "run out". It's a made up concept. Just print as much as you like.

Part of the problem with .... well everything today is the obsession with using money as a proxy for worth. It's why essential roles like carers are paid shit, while "high powered" roles are paid in multiples of tens if not hundreds of those roles.

And if the government doesn't want to print more money it can just revalue it while it's in your pocket. Which has happened.

Does it really matter if the money runs out, or government decides to stop handing it out? Same outcome. Unless we change something. For the record, I think its important to protect the state pension. I just dont see how its possible. Erosion of pensions, rising house prices, declining fertility, climate crisis. All a symptom of the same problem. Profit over people. But that doesnt change the fact that current status quo is unsustainable

@DGRossetti

For everyone getting offended, going on about how they have "paid in", what will we do when the money runs out?

Money can never "run out". It's a made up concept. Just print as much as you like.

Part of the problem with .... well everything today is the obsession with using money as a proxy for worth. It's why essential roles like carers are paid shit, while "high powered" roles are paid in multiples of tens if not hundreds of those roles.

And if the government doesn't want to print more money it can just revalue it while it's in your pocket. Which has happened.

See my post above.

Does it really matter if the money runs out, or government decides to stop handing it out? Same outcome.

Only if you rely on government money. Well your government money. A lot of countries (that admittedly I wouldn't like to live in) get by using someone elses money - US dollars usually. As do entire industries like drugs, trafficking, slavery, most of the oil industry.

Beyond that, of course, are cryptocurrencies. Not for me at the moment, but some are managing OK.

Even precious metals are of limited value in some respects. No matter how much gold you may have you can't eat it.

How can the governments money run out. Two certainties in life Taxes and Death.

The Government will always collect tax and in turn decide how to spend it. That includes spending on defense, infrastructure, pensions, schools, welfare benefits and the NHS.

@Lockdownbear

How can the governments money run out. Two certainties in life Taxes and Death.

The Government will always collect tax and in turn decide how to spend it. That includes spending on defense, infrastructure, pensions, schools, welfare benefits and the NHS.

Whilst Govt money doesn't "run out" as such, the country's "wealth" depends on interest rates, balance of payments, exchange rates, etc., If the Govt "print" too much money, then it affects other things, like exchange rates and interest rates, which detrimentally affects us, i.e. makes imports more expensive so drives up inflation and reduces buying power, makes exports cheaper so reduces UK manufacturing profits (less tax revenue, more unemployment). If foreign investors (who've lent money to the UK increase interest rates, or refuse to lend, then the UK has less money to spend on public services, investment, etc. Higher interest rates also impact firms' ability to grow and invest. It's all a huge balancing act, and no where near as simple as "just print more money" due to the consequences.

It might have less money but it will still have a choice in how it spends it. It might come down to a choice of UC vs Pension but the pot won't be empty.

There is an argument that with limited employment you are better to Pension old people off than to have younger people with children claiming benefits.

It will come down to choice. But the pot won't be empty.

No. It must remain universal. Means testing may be appropriate to some benefits but it would be the thin end of the wedge: how about means testing at A&E? My parents were always bitterly against means testing having experienced life before the welfare state. And it is true that the UK old age pension is much worse than in France and other EU countries.