View more on these topics

Thinktank calls for state pension to be means-tested

The Institute of Economic Affairs is calling for state pensions to be means-tested and replaced with a system of compulsory savings.

In a paper on Income From Work, published today, the IEA says the state pension “crowds out” private schemes and should be scrapped.

It calls for an Australian-style system of compulsory auto-enrolment and for the state pension to be means-tested to provide support for the poorest.

It also calls for more rapid increases in the state pension age to 68 for men and women by 2023 and then linked to life expectancy.

The Treasury currently plans to increase the state pension age to 68 in the mid 2030s and 69 by the late 2040s.

The paper highlights falling unemployment in older people and examines ways to find more work for the over 55s.

It argues the Treasury could save billions by reducing incentives to retire early and allowing people to work past retirement age.

It calls for tougher tests for disability benefits as well as curbing trade union power among older workers.

It states: “Since public pension schemes crowd out personal savings and also produce incentives to retire earlier, it would be highly advantageous to move towards a privatised pension system in which citizens are given more responsibility to save for their own retirement.

“This means that any payments from the government to people at older ages would be means-tested.”

Earlier this week, Prime Minister David Cameron said he would keep the triple lock on state pensions until 2020 meaning they will rise in lin with earnings, inflation or 2.5 per cent, whichever is highest.


News and expert analysis straight to your inbox

Sign up


There are 17 comments at the moment, we would love to hear your opinion too.

  1. Michael Jenkinson 8th January 2014 at 9:47 am

    It seems strange to me that it has become the time to suggest means testing pensions. It isn’t the pensioners who are at fault for the cost of providing state pensions, that falls squarely on the powers that be not thinking about how to fund the pension scheme right from the beginning.
    If you had worked on minmum wage jobs all your working life you would know that saving for a pension is difficult if not impossible. There just isn’t the disposable income to do it.
    The cost of means testing will become far more than the savings these thoughtless tank people suggest might accrue.
    Do these people get paid to think? There’s not much evidence of it here.

  2. All that is needed is the political will to make NEST compulsory for ALL new entrants and the only plan available. Phase out existing arrangements over a long time scale. No one has the right to be poor and then expect others to feed them. Pension contributions – without tax relief – need to become compulsory on a money purchase funded basis. Compulsory level to be set to prevent future retirees from being eligible for any other state benefits.

  3. Britain’s total debts at around 950% of GDP. It is made up of unfunded promises namely the welfare state and public sector pensions. Compared to the size of our economy, Britain is now one of the most heavily indebted countries in the Western world. Proportionally, that’s twice as much debt as Greece.
    It is impossible to repay and probably impossible to service.

    It does not matter if you vote Conservative, Liberal, Labour, UKIP – or for no party at all. The facts are the facts. Democracy doesn’t work because the public voter won’t face the truth and certainly they will not re-elect any government that tries to resolve this problem. The solution will be externally imposed.

    If you can recall In 1976 Britain faced financial crisis. The Labour government was “forced” to apply to the International Monetary Fund (IMF) for a loan of nearly $4 billion. IMF negotiators insisted on deep cuts in public expenditure, greatly affecting economic and social policy.

  4. This is crazy talk which is actually annoying me!!
    Imagine if you took out an Insurance policy with a life company, the policy matured and you went to claim your lump sum and the company rufused to pay out because you earn to much! Thats exactly what this “think tank” is suggesting. We are all in a NATIONAL INSURANCE SCHEME AND WE ALL PAY INTO IT BY WAY OF NATIONAL INSURANCE CONTRIBUTIONS, Its for everyone rich or poor. The Government cannot have it both ways im sorry. Either abolish the scheme which will reduce everyones outgoings and let us make all our own arrangements with a safety net for the poorer members of society or shut up. I read similer this week regarding the NHS and charging us £10 everytime we visit A&E. WE ALREADY PAY -YOU CANT CHARGE US TWICE just because the NHS is poorly run and is just like a bottomless pit swallowing up billions of punds each year. I woder how much these idiots in so called “think tanks” actually get paid? similar amounts to the idiots that run the FCA ill bet!

  5. @ Simon

    At last! Someone singing from the same Hymn Book! When we had North Sea Oil in abundance the proceeds should have gone to a Sovereign Wealth fund, but instead like a dim Lottery winner we went out and spent, spent, spent.

    We now have the opportunity again with Fracking. We should frack for all we are worth and every penny should go to such a fund. If NI contributions were honestly handled from the outset, instead of just being the original stealth tax we might not be in this hole today.

    As Simon says, not only are we the most indebted, we are also one of the most highly taxed (when all taxes are included) and we have the lowest State Pension in G20 (bar Mexico).

    As you say Simon, it doesn’t matter who we vote for, it would seem that they are all incompetent idiots.

    @ Bones. So you want to make all private enterprises benefit agencies? If you view became reality we’d have the same sort of exodus as Mr Hollande has engendered in France.


    Many of us pay a hefty sight more and have PMI to avoid the farrago that is the NHS. Most European countries have better health services than we do. A tenner for a GP visit for those working will not break the bank. If you go into hospital how about paying (say) £20 per week for food. If you weren’t in hospital you’d be spending that anyway. There are many ways to save money, provided you slaughter the ‘sacred cows’.

  6. Politicians will start acting in the long term national interest when the electorate starts voting in that same interest – rather than short term personal gain. No one wants to be the politician who cut pensions – the grey sector would not reelect him/ her.

    One only has to look at teachers & fireman (and many others) to see how the erosion of pension “rights” (brought about by nothing other than demographics) has come close to causing riots…

    Jean-Claude Juncker the PM of Luxemburg said of the financial crisis – “we all know what needs to be done – we just don’t know how to get reelected after we’ve done it…”

  7. To all those who regard National Insurance as some sort of insurance – really??? That may once have been the intention but realistically it has been a part of general taxation for as long as I can remember – and that is sadly quite along time!

  8. The state pension is taxed and thus is already means tested.

    If further means testing is decided on then all pensions should be subject to it. This is because of the substantial tax relief given with and to approved pension schemes and the quasi tax relief given to the beneficiaries of all unfunded or part-only funded public sector schemes.

  9. It is not an undesireable thing to have a state pension scheme, as some people seem to be suggesting. On the contrary; there are many people in our society who work their socks off their whole lives, sometimes because they have been poorly educated or just do not have the capacity to earn a good salary and have a decently funded pension scheme. If we actually do want to live in a caring society we should be prepared to help these people with a decent pension when they can no longer work.

    This country can afford to look after pensioners. The ineptitude and shortsightedness of successive governments is to blame for mishandling the public finances and looking after the wrong people. I include, in that, allowing the bank bosses to bring the country to its knees.

  10. Harry/ Simon you are really missing the point here!
    You and I may well be able to afford a tenner to go to A&E and buy cosy PMI – most people cant and whether NI is really another tax or not its still NI and we still have a welfare state. If the Goverment want to abolish the welfare state then they will have to reduce tax and abolish NI as well. We are the most over taxed country in the world. They cannot have it both ways im sorry. All you have to do is look at the USA who have a far better an efficant health service than us but of course they all have to have PMI and there is a safety net for the poor. On the other hand look at the price of their petrol and look at their taxes, they are a fraction of ours because they dont have the bottomless pit of state pensions and the NHS.

  11. Terence O'Halloran 8th January 2014 at 5:10 pm

    My response turned out to be an A4 page. Here is the precis.

    The NI scheme has a surlus of £32bn. It IS an insurance scheme. The funds CANNOT be used for other purposes than described in the Act. Ask Gordon Brown he tried very hard to use the funds and failed. The myth that it is taxation by another name is political propaganda.

    Read 3 chapters of Hindsight -the Foresight Saga (16,17,18) it is all there. I have been steeped in this topic for over 30 years (as National NI spokesperson for the Fed. of Small Bus. (FSB) ).

    Semi retirement suits me, the continuing miss-information and THEFT of paid for benefits sickens me. Terence P

  12. Terence O'Halloran 9th January 2014 at 8:48 am

    My response turned out to be an A4 page. Here is the precis.

    The NI scheme has a surlus of £32bn. It IS an insurance scheme. The funds CANNOT be used for other purposes than described in the Act. Ask Gordon Brown he tried very hard to use the funds and failed. The myth that it is taxation by another name is political propaganda.

    Read 3 chapters of Hindsight -the Foresight Saga (16,17,18) it is all there. I have been steeped in this topic for over 30 years (as National NI spokesperson for the Fed. of Small Bus. (FSB) ).

    Semi retirement suits me, the continuing miss-information and THEFT of paid for benefits sickens me. Terence P

  13. Just one problem with means-testing State Pensions might well be that it will disincentivise people from, effectively, funding their way out of entitlement to benefits for which they’ll be paying by way of NIC. How do you address that conundrum?

    I still hold to the view that instead of forcing people to participate by compulsion in a manifestly broken pensions system it would be far better completely to restructure the system itself and make it attractive to people to participate in voluntarily. Thje obstacle to that idea, though, is that so much damage has already been done to public trust and confidence in pensions, the situation is now irrevocably beyond salvation. Public perception is that whatever improvements one government may come up with in this parliament will be undone by the next, a constant moving of the goalposts. Either that, or a party (such as the Conservatives) promises in its pre-election manifesto all sorts of improvements but, once in power, it fails to deliver on them. So people steer clear and who can blame them?

  14. @ Richard

    I have some knowledge of the US State Pension. I’d gladly have that instead of the UK one. So it would seem that they can afford decent State Pensions. Why do you say that we have a Welfare State? Do the French, Germans, Italians say they have a Welfare State? Is our system so much better than theirs? It’s a myth and always has been. The instigator of the Welfare State after Beverage was Aneurin Bevan and his famous quote tells it all: “The secret of the National Insurance Fund is that there isn’t one”.

    I accept that there are many poorer people, but save for the unemployed, pensioners, the disabled and those in full time education how hard would it be to pay £10 for a visit to the Doctor? It may well stop all those with the ‘sniffles’ wasting the doctor’s time. And what about a contribution to food while in hospital? I would have thought the logic is inescapable.

  15. @Richard Wright
    “You only have to look at the US…”
    You are right US petrol and tax is lower than ours. But wrong on their healthcare. The part of the US health system that works is paid for by private medical insurance. The cost of which dwarfs UK NIC by a factor of 2 or 3.

    Then there are the millions who cannot get/ afford PMI – they have next to nothing and Obamacare, the latest initiate to try and provide cover for the masses may destroy what’s left of Obama’s presidency

    Yeah you only have to look at the US – to see how it should NOT be done!

  16. But the world has changed faster than the mind-set of the UK population and those who claim to represent them. On the 1st of January, 1909 the welfare state began when there was a “Great” in Great Britain. Britain still had a booming overseas Empire & it had yet to fight in the cripplingly expensive First & Second World War. We were a world dominant economy. Even so the state pension applied only to men aged 70 and above at a time when the average working man could expect to live to 48 years of age.

    Now we have more people over 65 than under 16 years of age & we are no longer a wealthy and dominant power. If we do not cut our cloth, someone will do it for us.

  17. @ Simon Webster
    More wrong info from you again im afraid – if the cost of the NHS was simple funded by NI contributions we would be waiting for treatment forever. Income tax and all the other hidden stealth taxes such as VAT , fuel duty ect ect ect also pays for It. So not only do Americans save by not having to pay NI they dont have all the crippling income tax and stealth tax’s to pay like we do. Only the poorest members of society in the USA do not have PMI. Its common knowledge that actual standads of health care in the USA are far higher than ours as indeed is Spain. Ask any Spanish Doctor who has worked in the NHS where they would rather be treated!!
    @ Simon Mansell
    Cut our cloth yes – and thats actually happening with later retirement dates – but dont try to charge me twice – if you privatise the NHS then tax’s have to come down acordingly. As regards to the State pension I refer to my earlier comment – its paid for by National insurance so you cant really means test it can you !

Leave a comment


Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm