Written by Karen Bryan
Making regular payments into my stakeholder pension is leaving me feeling jittery. I can’t accurately gauge what my pension pot will be worth when I want to retire, as its value is dependent on the stock market. In addition, I’m getting an increasingly uneasy feeling that my state pension could be reduced if I have other income and/or savings.
With all the spending cuts, I’m sure that the Government must have their eyes on reducing the ever growing state pension bill. It must have crossed their minds that bringing in some sort of means testing to the state pension could save a fortune.
You could argue that if someone has a generous final salary occupational pension, plus investments and savings that they don’t really need a state pension. However paying National Insurance Contributions (NICs) for decades is supposed to pay for your State Pension.
There’s already been talk about some kind of means testing for the pensioner Winter Fuel Payment. Child Benefit was always a universal benefit paid to all parents regardless of their income. Now higher rate taxpayers are having the benefit withdrawn. Therefore, it hardly takes a leap of imagination to think that means testing could be applied to the UK state pension.
I’ve some savings in a Cash ISA pot as a possible tax free addition to my pension income. Let’s hope that doesn’t end up either being used as part of means testing for the state pension or that the tax status of Cash ISA savings is changed for the worse.
As I only expect to get an income of a few thousand pounds a year from my stakeholder pension plus the interest from my Cash ISA account (especially if annuity and interest rates keep falling), I reckon that I’d be below any threshold for a means tested withdrawal of the state pension.
However, it illustrates that it’s very complex trying to plan retirement when the goalposts change, e.g. the reduction to 1.25 million of the tax-free lifetime allowance limit in the Chancellor’s Autumn Statement and the proposed increase in the number of years, from 30 to 35, for which you have to pay NICs to qualify for a full state pension.