It seems like everybody’s shouting about the state pension. On one side, you have the triple lock abolitionists. They are usually young; but not always. Indeed the comments published online below some recent articles by my own dear Daily Telegraph include dozens from pensioners who do not think they should have an entitlement to a roughly £1,000-a-year increase in their pensions – as it is going to be the case in April 2023 if Rishi Sunak and Jeremy Hunt do decide to maintain the lock.
“As a state pensioner”, wrote Laurence O’Brien below a column from a columnist arguing pensioner millionaires should not qualify for the full lock, “I have to say that the triple lock is indefensible.
“It doesn’t sit easily with me that I should get a 10 per cent increase when many wage earners are having to settle for less than that or nothing at all.”
The other side think the protections afforded by the lock are the least the Government could do for a generation who have paid National Insurance, in some cases for 50 years or more. They also argue that in many cases they did not have compulsory company pensions, as has been the case since 2012 under automatic enrolment.
Of course, on the Telegraph website this latter group far outnumber the abolitionists.
Paul Clements’ comment below the same column is typical: “What a childish article… there will be many pensioners who technically are millionaires because they live in a house worth more than £1m, paid for when they worked and/or inherited.
“They will still be on fixed incomes, maybe of little or no more than the state pension. Yes, of course, there are many pensioners who have substantial income (as opposed to capital) wealth and maybe the triple lock should be removed from them.
“So, [are you] suggesting that every pensioner in the UK be means tested. How is that going to work?”
Paul asks a question I hear a lot. Many think means-testing the state pension – and other benefits, like the fuel allowance – is the answer. This is a key feature of the Australian system, which is often held up as a model to replicate. It introduced auto-enrolment many years before Britain and private pension savings are consequently far larger.
Its means testing is pretty comprehensive, covering income from employment, pensions, annuities, overseas earnings, as well as assets including stakes in businesses, investment properties – even caravans, cars and boats.
In a 2017 University of Kent study, Professor Paul Sweeting argued means testing is a fairer way of controlling costs than simply increasing the state pension age, which disproportionately affects poorer people in manual jobs. Indeed, this group are more likely to have left school early and will have paid National Insurance for far longer than other workers who go on to live longer.
Figures compiled by Canada Life this month estimated a woman living in Kensington & Chelsea in London could expect to receive £355,410 from the state pension over her life. A man from Glasgow meanwhile would only get £189,824, or a staggering £160,000 less.
Professor Sweeting suggested tapering the state pension away by £1 for every £10 of income received over the threshold for higher-rate tax. Today, that would mean cutting pensions for anyone earning over £50,271 a year.
Should Britain follow suit? There are several very good reasons why the answer must be no. As always with pensions, anything that can be done to avoid adding even more complexity should be embraced. The so-called “flat-rate” state pension is already nothing of the sort. Huge numbers of people expect to receive the full £185 or so a week and end up feeling short-changed because they did not understand what “contracting out” meant. Imagine if we had another filter which meant even fewer people got the headline rate the Government so loves to shout about.
In 20 or 30 years, hopefully, the majority of people will get the flat amount. The bulk of the contracted out pensioners will have been through the system and the various credits you can claim to fill in gaps, for caring for children or elderly parents and so on, will mean far more people have enough years to max out the pension. To upset that would be a disaster for the nation’s financial planning.
Is there a chance that savers cut or entirely opt-out of private pensions if they think their state pension will be cut? I think the success of auto-enrolment, even in the teeth of the pandemic, points to the power of inertia. What with the annual and lifetime allowances, we do not want any more disincentives for private savings. Like early access, politicians need to quash any ideas of means testing our pensions.