Call to scrap state pension for wealthy criticised

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.”

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.”