Pensions experts have criticised comments made by a leading economist at the Organisation for Economic Co-operation and Development that wealthy UK citizens should see their state pensions cut.
Last week, OECD deputy director of employment, labour and social affairs Mark Pearson told the Financial Times that as Britain’s population continued to age, poorer retirees could be given a boost by dropping the state pension from the richest 5 to 10 per cent of society.
Pearson said that one way to ensure adequate pension provision would be to think about whether the pension should only be paid to those who really need it, to ease the tyranny of the maths”.
“Giving less [pension] to the people at the top would free up resources to increase general benefits.”
As the state pension is paid out of national insurance contributions Intelligent Pensions technical director Fiona Tait says that the move would be unfair on those who have already funded their state pension but would not receive one.
Tait says: “They’re taking away benefits that those individuals have probably already paid for because they’ve been making NICs. It seems slightly unreasonable to say you keep paying NICs but you don’t get one of the benefits aligned with that.
“They could say we will reduce NICs but then you don’t get the savings.”
“There’s another practical issue of whether people would be able to plan going forwards. We have just got to a stage where people can ask for state pension forecasts and expect to get it. If it’s going to be means tested, you may have a situation where out to 20 years, this is what we think you will get, but at some point later when you rely on it you find you are not going to get it.”
Tait called the policy “unworkable” and “unwieldy”.
First Actuarial director Henry Tapper says that the scrapping the state pension for richer citizens would not be the best way to achieve the desired aim of improving outcomes for poor pensioners.
Tapper says: “The situation for people on low incomes in retirement doesn’t just depend on the state pension. Pension credits, housing benefits and access to subsidised care are subject to means tests. The OECD seem to be looking at one part of the machine without understanding the fine tuning of our very complex support system for older people.
“If I was looking at problems with our welfare system, I would not start with the state pension. Ours is at last beginning to pay in line with our OECD peers. I’d look at how we look after and pay for our physically and cognitively impaired older citizens.”
The view from the CPS
In an article for Money Marketing, CPS research fellow Michael Johnson said that the CPS was right to argue the state pension should eventually be scrapped for the rich.
Johnson wrote: “Sooner or later we are going to have to confront the state pension, and ask ourselves what is it for? Fundamentally, is it a benefit paid to those in need, or is it a contractual obligation of the state, established through NICs? The Treasury’s view is that it is a benefit.
“Treasury grants are ultimately funded by tax receipts from today’s workers (or by more state debt, which they will have to service). And many of them, particularly younger workers, do not believe that they themselves will ever receive a state pension. So much for inter-generational fairness.
“The traditional approach to controlling the cost of the state pension is to send the state pension age into retreat. But this is politically challenging, and consequently implementation is far too slow to head off a pending fiscal crisis. We need to be far more radical.”