A finance expert has warned that Britain cannot afford to continue paying the State Pension to all as the population ages. Chartered Financial Planner Joshua Gerstler has called for the phased introduction of means testing for the State Pension with a shift to private alternatives.
And Mr Gerstler, of The Orchard Practice, said people entering the workforce now should be advised there will be no pension from the state – except for the poorest individuals – when they reach retirement age in 40 years time.
He told Newspage: “The State Pension is not affordable for the UK to continue paying to everyone. The longer the Government leave it to address this, the bigger the fallout is going to be.
“The State Pension needs to become a means-tested benefit.”
However, he added: “To ensure fairness for those who have been expecting and planning for this pension their entire working lives, a phased approach to this needs to be taken.
“Those yet to enter the workforce should be now told that they will not get a State Pension. This gives them 40 years to plan properly for their retirement. And if State Pension Age they have not made pension provisions then the means tested element can kick in.”
The idea of means testing the pension is gaining traction. For example, Sir Edward Troup, one of four tax advisers appointed by Rachel Reeves, suggested last month that the state pension should be means-tested.
He told LBC last month: “If the public finances are in a bit of a state, perhaps wealthy pensioners should be giving up their full state pension.”
Sir Edward admitted that means-testing pensioners would be hugely controversial but said a “debate needs to be had” and means-testing “should be delivered”.
David Blanchflower, a former Bank of England economist who sat on the Monetary Policy Committee, said in March that a future government would probably need to consider means-testing the state pension.
He added: “An incoming government is going to have to means-test stuff. They are going to have to raise the basic pension a lot for the poor, and probably means-test it.
“It isn’t that pensions are too low, it is that they are too low if that is the only income you have.”
The Social Market Foundation think tank has called for a Royal Commission to conduct a review of the state pension’s future financial sustainability – and assess the viability of means-testing.
Former Pensions Minister Sit Steve Webb, who is now with consultancy LCP, said means testing for pensions is not imminent, but it is likely to be an option in the future.
He said: “Means-testing is very much the nuclear option. The state pension is seen as something people have earned – an entitlement that you’ve paid into all your life.
“It could be a long-term direction of travel that would impact future pensioners.”
