Yes
James Dickson of the Adam Smith Institute, a free market think tank
There is a European nation that spends over half of its welfare budget giving direct cash transfers to some of its richest citizens, a quarter of whom have household wealth exceeding £1 million. This payment is required by statute to grow faster than the economy and the wages that underpin it, rendering it unsustainable in the long run.
The recipients of these payments are not just disproportionately wealthy, they also enjoy higher post-housing incomes than those being taxed to fund them, who are increasingly being priced out of homeownership. Many struggle with rent and childcare and, this year, basics such as food and heat. Does that sound justifiable?
We are the European country in question, with our “triple locked” state pension. There is a reflexive — and understandable — instinct to defend entitlement to a payment that is seen as a return for “paying in all my life”. But in reality this is a misconception. There is no personal pension pot that national insurance pays into. The state pension is simply a universal benefit paid from general taxation.
We would not dream of paying working-age benefits to millionaires, yet this is precisely how the state pension functions. The super-rich get the same as pensioners in poverty.
Advertisement
This income redistribution to rich, older people from the assetless young is just one facet of Britain’s growing intergenerational inequality. A recent Adam Smith Institute paper called for the very richest pensioners to stop receiving these unjustifiable payments. We advocate a means-tested tapering of this benefit for pensioners earning beyond the higher rate tax threshold or who have household assets exceeding £1 million.
It is simply not reasonable or justifiable to tax struggling, working-age families to feather the nests of the already well off, especially when a nest of their own is so far out of reach.
• How much state pension will I get?
• State pension underpayments: who is affected?
No
Steve Webb, a former pensions minister and now a partner at the consultancy LCP
Advertisement
Means-testing the state pension would be a terrible idea.
One of the biggest pension successes of recent years has been the automatic enrolment of about ten million people into workplace pensions, giving them a second pension on top of the state pension. But imagine a world in which those with decent private pensions saw their state pension cut back. Suddenly, workplace pension saving would go from being a no-brainer to being of questionable value for many of modest means.
Means-testing the state pension could have the perverse result of leaving more people dependent on the state in retirement rather than fewer. There would need to be an intrusive process to check that people were not deliberately running down their savings to boost their state pension. We already have rules of this sort to prevent means-tested benefits from being exploited, but if the state pension were means-tested, the state would have to monitor millions in retirement to make sure no one was “gaming” the system.
We already have a progressive state pension system. Broadly speaking, higher earners pay more in (via earnings-related national insurance), while the new state pension is paid at a flat rate to all, with extensive crediting for low earners and carers. And the state pension is already taxable — more than half of pensioners pay back at least 20 per cent of it in tax.
If means-testing were introduced, there would need to be a long
lead-in period because those in retirement or near to retirement could not be expected to rewrite their retirement plans at short notice, so it would not save significant sums for years to come.
Advertisement
There are other ways of controlling the state pension bill, including proportionate changes to state pension ages and (eventually) looking at the generosity of annual increases. But means-testing should be a non-starter.
Who do you agree with? Let us know your thoughts in the comments below
