UK state pension should be means tested, says International Monetary Fund

Kyle Caldwell
23 November 2018
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The International Monetary Fund (IMF) has called on the UK government to consider means-testing the state pension.

Such a move, it is claimed, would make the system fairer and more affordable, with the IMF noting that means-testing would ‘improve sustainability’ and ‘safeguard the most vulnerable’.

The same idea has previously been mooted (in May 2017) by the Organisation for Economic Cooperation and Development, in order to help address the strain that an ageing population is putting on the state pension.

The IMF says: “Giving less pension to the wealthiest retirees could free up resources to finance general benefits. At the same time, similar redistribution objectives could be pursued by using the tax system (e.g. by increasing the tax burden relatively more on better-off pensioners), while preserving a simple and clear structure for state pensions.

“Means-testing for access to social benefits in old age could also be used to improve sustainability while safeguarding the most vulnerable. Alternatively, similar redistribution objectives could be pursued by using the tax system, while preserving a simple and clear structure for state pensions.”

The IMF also pointed out that the state pension age needs to rise, while the triple lock, which is an expensive policy, needs to be reformed.

At present, the UK state pension is based on National Insurance contributions rather than wealth. A move towards a means-tested system, based perhaps on an income threshold, would prove controversial, notes Steven Cameron, pensions director at Aegon.

A more likely course of action, avoiding the political risks attached to means-testing, is for further increases in the state pension age.

Last summer, the government outlined that the state pension age will rise to 68 between 2037 and 2039. This, though, was seven years earlier than originally planned. As a result, this change will hit everyone born between 6 April 1970 and 5 April 1978; the chances are that future governments will make further similar moves.

Mr Cameron says: “That there may be further increases to the state pension age is no surprise. With people in the UK living longer than ever before, the age from which state pension is paid needs to be kept under careful review to ensure it remains affordable long-term.

“Of all the suggested solutions put forward by the IMF, the most contentious is making state pensions means-tested, which could mean those with earnings or assets above a certain level no longer qualify, even if they have paid National Insurance throughout their working life.”

The government is acutely aware that it has a problem on its hands to sustain the state pension. Earlier this year, the Government’s Actuary Department (GAD) warned National Insurance contributions need to rise to fund it.

The GAD calculated that a 5% tax hike is required to sustain the state pension, which is being stretched by the UK’s ageing population. According to GAD, the fund will be exhausted by 2033 under the current NI rates.  

Cameron adds: “Unlike ‘funded’ private and workplace pensions, there is no fund built up to meet future state pension payments, so it’s those who are working who meet the costs of state pensions year on year through National Insurance contributions.

“The amount of state pension also clearly has a bearing on affordability going forward. Under the triple lock introduced in 2010, the state pension has been rising at the highest of earnings inflation, price inflation or 2.5% a year, adding significantly to its cost.”

This article first appeared on our sister site Money Observer

Comments

In reply to by anonymous_stub (not verified)

Before these highly paid members of IMF, think tanks and the like make such stupid suggestions to means test Old Age Pensions and do away with the triple lock they should address the payment of obscene salaries paid to company directors and the like. Since the average income of a worker in the UK for his entire working life is just over a £million why do they not address the fact that many many people take home this amount EVERY WEEK. The recent salary increase of the owner of BET365 to £265 Million per year hilights the issue.

In reply to by anonymous_stub (not verified)

Basically the harder you work to earn for your family the less you will get back in your old age - time to become a sofa surfer

In reply to by anonymous_stub (not verified)

Ahhhhhhh I get drift ...... ohhhhh dear we told we got look after our kids , we told we got provide our social care ...we told we got to look after people coming to UK .....we worked all our lives .....very poor pension .....compared to other EU countries ........ while our Goverment act like bunch school kids , trying hard to look after their self interest...on TAX payers money...... so I suggest you get lost ......or maybe we start acting like french ..... not take it sitting down ......cut Goverment pay

In reply to by anonymous_stub (not verified)

The state pension rise in 2017 was 2.5%, the triple lock figure, whilst many in employment were held to 1%. At first glance this seems unfairt but what I would suggest is unfair is to measure such things in percentages when what is important is the actual rise. A loaf of bread does not rise in price by a different amount dependent on age or employment status. Using an “across the board” percentage for rises leads to a widening of any gap. The rich get richer and the poor fail to keep up! 2.5% of the average state pension is less than 1% of the average wage and so, even in that unusual year, state pensions fell behind in real terms. It is almost impossible to state what an average state pension is now. The promised simplification of state pensions means that there are now so many different calculations to be made and it will be 2080 before the first person retires on a state pension based solely on contributions under the new scheme. Simplification of pensions has become over complicated. What is clear is that if the Government had not broken the link to earnings for several years the basic state pension would have been around £198 per week, in excess of £50 more than the current figure. The UK state pension is currently at or near the bottom of a table of 37 OECD countries in terms of a percentage of earnings! A fact which Age UK have said should be a wake up call. It appears that somebody in the IMF is trying to hit the snooze button!

In reply to by anonymous_stub (not verified)

What the IMF don't take into account is that the UK pays one of the lowest state pensions in Europe. Unlike most other countries means testing may make sense but any action taken in the UK to lower state pensions should be avoided at all costs.

In reply to by anonymous_stub (not verified)

Picking up on the point that even if you paid all your life into SERPs you would not get the return you are entitled to, so why pay towards it in the first place. It is a total sham to expect people to pay all there life and then give them nothing. The government will also milk this idea for the middle class by lowering the amount you can have from your state pension so as they can benefit. The people should have options and a vote on what to do, raising the age more is just ridiculous, and people will be on benefit because they cannot work for that long. The IMF is just looking at the financial impact and of course the people have to take the brunt of all of this. Not pleased

In reply to by anonymous_stub (not verified)

The state pension is means tested. At least mine is but then there seems to be as much confusion at the DWP over pensions as allegedly in the community.

In reply to by Brian Hubbard (not verified)

Absaloutley right, and those in Europe recieved a much greater state pension. Why?

In reply to by Keith Hunt (not verified)

It does make you wonder why we work and save then it's taken off us if we need care. No incentive what do ever to provide for your retirement

In reply to by anonymous_stub (not verified)

In UK pension contributions are meant to be in a ring fenced fund.You get out what you pay in. Its elegant and rewards those who have worked ( yes, stay at home parents are an issue) It is a good system but the health insurance element is set to run it dry and should be separated as immigrants are not paying their way. A separate system for ensuing healthcare is required.

In reply to by anonymous_stub (not verified)

Again we see the average person being hit my people like IMF who live on large salaries and don't give a hoot about people who have scrimped and saved and paid into the system all their lives. Let's cut all bonus's to directors,IMF, banks, politicians, etc and see how they like it.

In reply to by anonymous_stub (not verified)

The problem is that our politicians are only interested in winning the next election, at any cost, and not setting up a stable polity for the future. This is because the whole of our financial system is based on the necessity to accumulate debt to pay for future spending - it is entirely understandable from a short-term point of view but incredibly short-sighted for long-term stability. We need to take a long hard look at what we spend our taxes on and only spend what we can afford to pay - or maybe a little less - so that we can acquire some future capital for contingencies. Wasting money on HS2 at the behest of the EU is fatuous nonsense on stilts as well as giving them development funds which they send back to us with instructions on how to use the money. Wasting billions of supporting German car manufacturers and French farmers is another incredible waste of money. Sending aid to countries who mean us harm is another utterly insane waste of our money. Having wasted the opportunities provided by North Sea oil we need to have some serious cost/benefit analyses of what we are doing with our tax money. Norway had the right idea - we could have done the same but now it is too latem - we art in debt up to out necks and on the verge of being sucked into the quicksand if we do not manage to escapr from the EU - preferably with a single bound.

In reply to by anonymous_stub (not verified)

IMF how much are you talking about to be means tested 50k. 40k. 30k. 20k.and does that apply to the MPs and BANKERS like you brainless idiots who come out with such crap.

In reply to by anonymous_stub (not verified)

I thought British workers paid part of their wages for all of their working lives towards a pension when they retired, usually 50 plus years, but now there is a suggestion that we are to be means tested and deprived of the promise of a reasonable pension. I say reasonable because I believe we are the poor relations of Europe when it comes to pensions for retired people. The government has already increased the age that workers can draw their well earned UK pension, so now people have to work on before they receive their pittance and could now possibly be told, sorry your savings are above the cut off threshold, so no pension for you. Workers who have been careful and looked after their money for all of their lives have always been penalised by our governments, while the ones who have spent everything they have earned, also the ones who have not worked and spent everything as they went along, have always been looked after when reaching retiring age, but at least the careful ones received their hard earned pension. If this IMF suggestion takes off then these careful people will be deprived of the pension that they worked hard and been forced to pay for. When is our government going to start looking after it's own people and stop sending £13 billion plus abroad every year without knowing where it is going and what it is being used for. Help out when there is a real need, or a catastrophe, but don't just throw it around just to get rid of it. I have voted conservative for a very long time, but I am afraid this present government seem to be on a ruinous course for this country and the opposition appear to be even worse. Brexit has proved that the present government and most politicians don't care about democracy, or British workers and pensioners, so I think I will stay at home next election, because my cross doesn't seem to mean a thing anymore in this country.

In reply to by anonymous_stub (not verified)

"The IMF also pointed out that the state pension age needs to rise, while the triple lock, which is an expensive policy, needs to be reformed."So this is an undisputed fact, and not just the IMF's conclusion, is it? Or just poor writing?

In reply to by anonymous_stub (not verified)

So, is the IMF suggesting the same for ALL 189 countries within it's remit - or just the UK? And likewise, the OECD before it. How can a global organisation dictate how individual countries run themselves - or, could it be, that it'll free up YET MORE UK reserves to donate to other countries. My apologies for the cynicism!

In reply to by anonymous_stub (not verified)

Get lost! I paid in over 39 years of full stamp, even when married, worked full time since 17, but thank to a stupid devious lying husband lost everything 22 years ago, narrowly avoiding bankruptcy. I've worked hard since then to get back on the home owning ladder, and now you want to strip away the only other asset I managed to retain - get real!!! The government moved my retirement date back by 6 years already. I don't have great health thanks to a major accident 14 years ago, but continue to work full time, and now you want to try and means test a pension that I have more than paid for and continue to pay for - no way! The various Governments have been guilty of extremely shoddy housekeeping - don't ;penalise the payers - penalise the MPS - cut their flaming pay and benefits and pension before you cut any State Pension - we deserve it more!

In reply to by anonymous_stub (not verified)

Did the IMF come up with this all on their own, or was it commissioned by the government?Are we being prepared for a change?

In reply to by anonymous_stub (not verified)

The government is well aware that pensioners are voters and any move to means-test state pension is a vote loser - I don't see any governemnt risking it. There could also be riots on the streets like the poll tax riots.

In reply to by anonymous_stub (not verified)

Given the State Pension age has already been rising and people like me having to wait till age 66 (even worse for women who will lose £thousands having had their entitlement age raised from 60 to 66 too). It's a disgrace that the IMF should now suggest means testing as well. This is typical of those who come up with these radical ideas, who themselves get fantastic Pension entitlements!

In reply to by anonymous_stub (not verified)

Oh goody gumdrops; I'm getting an extra £4/week next year. What shall I do with that, I wondered.

In reply to by anonymous_stub (not verified)

What the hell is next I might ask, why don't organisations like the IMF stick their noses elsewhere? If the state pension is means tested at the same level as state benefits it penalise those of working and lower middle class who save hard for retirement by denying them their entitlement to a state pension, many of whom will have contributed to a state pension via up to 40 years of national insurance contributions. I could understand (though not necessarily agree with) if they were suggesting a cut off point above a certain level of income eg anyone with a have a very large pension fund (like some of our MPs and well paid executives) and where the addition of a monthly state pension (eg £600) would equate to a less than a quarter of the total monthly income. an average person with a private or occupational pension might receive a monthly income on average of £700-£900 per month and with a state pension of around £600 they would have a monthly income of between £1,300-1,500 (hardly a luxury retirement), therefore denying them their state pension on income level will only serve to widen the divide between rich and poor even more, and it will not give workers any incentive to pay into occupational or private pensions.

In reply to by anonymous_stub (not verified)

It won't be worth contributing, given the danger of being considered too wealthy to receive a pension. Punishment for success has never turned out well.

In reply to by anonymous_stub (not verified)

This Government has already hurt me by increasing the pension age to 66, I have just turned 60 and need to wait until I am 66 before I get my pension. I was medically retired from work and live on my work pension, I received nothing from the Government. Now they are talking of means testing the pension, those of us who worked hard to get a pension. Now people who never worked or planned for their pension, will probably have a larger pension than those who worked hard. This country offers no incentive to work, just sit back let the tax payers keep you, if you end up in a nursing home all paid for. Now means tested pensions I am disgusted.

In reply to by anonymous_stub (not verified)

To an extent I agree, but not if it risks catching out those who could get caught up in another Tory pension cut scandal! No doubt there's a huge risk that would happen considering their disgust at giving anyone money when they can back pocket it some other way!

In reply to by anonymous_stub (not verified)

The BBC should concentrate on providing a service to those who fund them through tax and scrap minor stations such as BBC Asia etc.

In reply to by anonymous_stub (not verified)

Odd that I can't see any reference to any other country paying a pension being required to means test theirs. Our pension is already one of the lowest in the developed world and having paid in all my life, I did hope to get a little something for the contributions I made.

In reply to by Hesperus (not verified)

Means testing the State Pension

Post No Deal Brexit, any of us who have a workplace pension can expect no State Pension at all. I’m already hit by this as a 1950s woman- downright unfair

In reply to by anonymous_stub (not verified)

It is both unethical and too costly to apply means tests to state pensions. How can these overpaid snouts at the IMF have the nerve to block money paid into the state system by entitled beneficiaries and for the amount paid out in later years to be arbitrarily determined by a pension income on which tax has already been paid and is, again, being deducted in retirement? There is, indeed, a problem of affordability by the State, but if the IMF can’t do any better in creative thinking to resolve the issue then they should mind their own business and continue to parasite off its member states on their obscenely high salaries and perks.

In reply to by anonymous_stub (not verified)

Why do these advisory organisations suggest screwing British pensioners when our government insists on paying 13 billion pounds plus to other countries, even when it's not needed. By all means help out when catastrophes occur, but surely the life and well being of a British citizen is just as important as that of people in other countries. I voted Conservative, but this government has ruined British health and care systems, policing of our streets and reduced council funding, so our roads and other services have declined drastically in the short time they have been in power, so I don't think I will be voting conservative again. Unfortunately there isn't a party, or politician I feel I can trust to look after the interests of the British people, so I might stay at home next election. I am sure there are many like me, especially after this Brexit fiasco and the two fingered attitude by remainer politicians and so called lords to democracy. The system suits them when they get elected, but it's stuff democracy and I'm all right Jack once they are in.

In reply to by anonymous_stub (not verified)

Would be better if only those who contributed to the state pension were able to draw from it, so many come to this country pay nothing into the system and draw full state pension through GPC. Those who receive GPC should not receive all the extra benefits they can get, GPC is equal to standard state pension today and those who paid in full amount don't qualify for these extras.

In reply to by anonymous_stub (not verified)

The Triple Lock was put in place because, over the years, Governments had not increased Pension payments in line with inflation. Agreed, over the years, longevity has increased but two problems face the over-sixties in the workplace. Firstly, health is probably not good enough to continue working in many professions. Do you really want a Fireman who can hardly work, rescuing you from a blazing building? A friend of mine was a Breakdown Mechanic for one of the major motoring organisations. He had to retire early after a knee operation caused by his job over the years. The workplace takes its toll on the body. Secondly, when you walk into a job interview, you can see from the expression on the face of the interviewer when they realise your age that you're not going to get the job. Don't even think about the Age Discrimination Act! It's totally unenforceable!Senior Citizens in most of the EU do better than those in the UK! We should be looking to see what they are doing right and we are doing wrong! Not all our pensioners are rich!

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