In our weekly series, readers can email in with any question about retirement and pension savings to be answered by our expert, Tom Selby, director of public policy at investment platform AJ Bell. There is nothing he does not know about pensions. If you have a question for him, email us at money@inews.co.uk.
Question: Is it true the state pension is classed as a benefit and can therefore legally be changed at any time? This feels grossly unfair given I’ve paid National Insurance contributions for almost 40 years and will be reaching state pension age shortly. What exactly could the government do? Means-test? Withdraw it completely? Basically, how worried should I be?
Answer: Before getting into the details of your question, it’s important to say upfront that there is pretty much zero chance the government will axe the state pension overnight, even with a Chancellor staring glassy eyed into a fiscal black hole ahead of the Budget this week.
square MONEY The Budget changes people across the UK want to see - from VAT to property taxes
Read More
That said, you are correct that the state pension is legally a benefit and can be adjusted. This is something that is often misunderstood, in part because entitlement to the state pension is linked to your National Insurance contribution record, which often leads people to believe they have paid into a pot and should be entitled to a guaranteed state pension from a fixed age.
In reality, the UK state pension operates on a pay-as-you-go basis, with taxpayers funding the benefits of today’s pensioners.
The fact the state pension is changeable has been demonstrated numerous times in recent history.
For example, the coalition government introduced the triple-lock – a policy that still persists today – increasing the value of the state pension by the highest of average earnings, inflation or 2.5 per cent. This means the state pension has risen significantly in real terms since 2011.
The state pension was fundamentally reformed in 2016, with a new single tier benefit introduced for future retirees, while the state pension age rose to age 66 between 2018 and 2020 and is set to increase again to 67 between 2026 and 2028 and 68 between 2044 and 2046.
So yes, it is possible the government could choose to make changes to the state pension, although the idea of means-testing – making entitlement dependent on your wealth and income – is unlikely, mainly because it would risk undermining automatic enrolment into private pensions.
If the result of building a decent private pension was a reduction in your state pension, people would understandably question if private pension saving is worthwhile.
Given the apparent sanctity of the triple-lock, any immediate change to the value of the state pension also feels unlikely in the short-term. The state pension age could be something the government is tempted to target, but again that won’t happen immediately.
The increase to age 67 is beginning next year, so there is no chance that could be accelerated, although the rise to age 68 timetable could potentially be brought forward. This could certainly be a tempting revenue raiser when you consider annual state pension spending is somewhere in the region of £150bn.
Your next read
square PENSIONS AND RETIREMENT Money ClinicI use salary sacrifice to boost my pension – will I face a tax bill if it’s scrapped?
square PENSIONS AND RETIREMENT‘I’m already struggling’: Retirees fear state pension will be taxed
square MONEYI put 18% of my pay into a pension – Reeves would be wrong to scrap salary sacrifice
square MONEYWe were hit with a £148k inheritance tax bill when mum died at 97 – it’s disgusting
However, this is also extremely unlikely to happen in the short-term. There is a general principle that any change to the state pension age should give you at least 10 years’ notice before it happens, so you have time to adjust your plans.
All of which is not to say the state pension is immune from reform. The triple-lock will have to go at some point and the state pension age is likely to rise further, and possibly faster, in the future as the government grapples with the ballooning cost of an ageing population.
But any changes along these lines will need to be flagged well in advance, so anyone approaching state pension age is unlikely to be affected.
Hence then, the article about is the state pension called a benefit so it can easily be scrapped was published today ( ) and is available on inews ( Middle East ) The editorial team at PressBee has edited and verified it, and it may have been modified, fully republished, or quoted. You can read and follow the updates of this news or article from its original source.
Read More Details
Finally We wish PressBee provided you with enough information of ( Is the state pension called a benefit so it can easily be scrapped? )
Also on site :