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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 last week, 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.”

FortyTwo Wealth Management partner Alan Dick says: “The state pension has become bloated and a major drain. We either accept massively higher tax or a different system so means-testing sounds like a feasible reform.”

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