Will the UK State Pension Become Means Tested?

Written by Karen Bryan

Retirement...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 Now higher rate taxpayers are having the benefit withdrawn.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.

2 Responses to “Will the UK State Pension Become Means Tested?”

  1. I don’t know about being means tested but it is of course taxable. No doubt they will find a way of clawing it back via the tax system.

    The Child Benefit withdrawl is disgusting as for people with more children, the marginal tax rate can exceed 100%. It would have been better to apply the same withdrawl rate as when people earn over £100k – £1 per additional £2 earned – which is a marginal rate of 60%.

    The thing with all of these is to put savings into a SIPP I think. At least for the CB withdrawl the £50k lower limit is gross salary after any employee pension contributions, which I didn’t realise until recently.

  2. John – I just can’t see the universal pension being affordable but then retirement age is going pretty fast. I’ve been caught in the gender equalisation to 65 and the increase to 66.

    Income tax thresholds should be much higher. I think at least the equivalent of working full time on the minimum wage.

    The whole Cnild Benefit change is illogical, it should be assessed on the total household income, not on the individual partners. What a mess.