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

Published by Kyle Caldwell on 23 November 2018.
Last updated on 23 November 2018

IMF state pension

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

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Basically the harder you work

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

It does make you wonder why

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

The Triple Lock was put in

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!

Would be better if only those

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.

Before these highly paid

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.

Absaloutley right, and those

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

Why do these advisory

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.

It is both unethical and too

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.

Odd that I can't see any

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.

The BBC should concentrate on

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

To an extent I agree, but not

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!

This Government has already

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.

It won't be worth

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.

What the hell is next I might

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.

Oh goody gumdrops; I'm

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

Given the State Pension age

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!

The government is well aware

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.

Did the IMF come up with this

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?

Get lost! I paid in over 39

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!

So, is the IMF suggesting the

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!