Martin Lewis has suggested that the State Pension could potentially become means-tested in the future, although he believes it is “unlikely” to occur. Speaking on this week’s Martin Lewis BBC Podcast, the money-saving expert also stated that scrapping the State Pension would be a “shocking decision” and assured listeners he would oppose such a move “vociferously”.
In a special State Pensions episode of his weekly programme, Martin offered advice on how individuals can increase their pension payments by filling any gaps in their National Insurance record. A listener named Sue raised concerns about her father needing to spend £8,000 to buy additional NI years, questioning the possibility of the State Pension becoming means-tested.
Addressing this, Martin said: “As I always say when asked about gazing into the future, Parliament is omni-competent. Parliament can choose to do anything. It can choose to make the State Pension means-tested, I think it would be a very interesting question if it did make the State Pension means-tested – what would happen to people who had paid? ” He added: “I think it is unlikely but that is unlikely looking through my 2024 eyes.”
“In a totally different world in 2040 I can’t make the prediction of whether these things will or won’t happen. I think there would be a big issue of justice if it were to happen, the State Pension has never been means-tested.”
Martin addressed the inherent uncertainties in life, particularly regarding financial investments and the prospect of means-testing State Pensions by asserting: “There’s always a chance. Do I think it’s likely? No.”
He further stated his position on potential changes to the State Pension, noting, “I don’t believe there are any current plans in place to means-test the State Pension. But who knows? Equally they could wipe the State Pension, they could say there’s no more State Pension.”
He then emphasised his strong opposition to such a move: “That would be shocking, I would be campaigning against it vociferously.”
The Department for Work and Pensions (DWP) is responsible for administering and delivering the State Pension to 12.7 million people across Scotland, England, and Wales, as well as expats.
A former DWP employee with an extensive 42-year background in managing benefits, including the State Pension, recently disclosed principal reasons why alterations to the State Pension are improbable, especially considering the number of National Insurance qualifying years that determine its value. It’s anticipated that if changes were made, they would affect the calculation method of the annual increase under the triple lock.
Speaking to the Daily Record, the insider remarked, “What is overlooked is the fact that people pay cash into the State Pension scheme in the form of Voluntary Contributions. So you are not going to pay cash into a scheme unless you are entitled to the payment of that benefit.”
“If the State Pension was means-tested, HM Revenue and Customs (HMRC) would have to refund Voluntary Contributions to those members of the public, who had paid them, but were not entitled to the payment of State Pension.”
They went on to explain that your State Pension is based on the NI contributions you pay from age 16 to State Pension age – typically, a period of 50 years – so some people may have paid Voluntary Contributions 20/30 years ago for a period in the future. This then raises the question, ‘would HMRC be refunding contributions from all those years ago, if the State Pension was means-tested?’ In short, no.
The former employee also pointed out how the differences between the Old/Basic and New State Pensions, makes it challenging to calculate refunds in the scenario outlined above. They added: “The payment of Voluntary Contributions is still available for the public, making the means-testing of the State Pension not really a viable option.”
“The deadline for paying Voluntary Contributions for tax years 2006-April 2018 is April 5, 2025, and these contributions may well be contributing to a State Pension which may not be claimed for another 18-20 years.”
The benefits expert highlighted another issue with means-testing the State Pension is in contracted out employment – which existed between April 1978 and April 2016) – your additional State Pension is not paid by the state.
They clarified: “It is incorporated with your occupational pension, so it may be difficult to actually assess how much State Pension is in pay to a person when part of it is paid with an occupational pension. So it may end up being an administration problem trying to sort this out.”
“Even with the New State Pension, any NI record prior to April 2016, which includes any contracted out employment, will be incorporated into the calculation of the New State Pension up to April 5, 2016 when the New State Pension started.”
The Old/Basic State Pension consisted of:
- Basic State Pension – paid on the number of qualifying years which you have
- Additional pension – first known as SERPS (State Earnings Related Pension Scheme) from 1978, then known as the Second State Pension from 2002 to 2016, and it was the additional State Pension scheme you could contract out
- The Graduated Retirement Pension which existed from 1961-1975
The former employee also mentioned that means-tested benefits like Pension Credit require claimants to inform the DWP about changes that could affect their income and consequently, their entitlement.
To then implement a system involving the same processes for nearly 12.7m State Pensioners residing in Scotland, England, Wales, and overseas would be too much for any government to handle.
They added: “At least with the State Pension, you receive what you are entitled to, know exactly how much money you have coming in a month and there is less likely to be any overpayment.
“To mention means-testing the State Pension may cause concern for some people, particularly when their State Pension may be their main source of income, but for the reasons mentioned above, it is highly unlikely that the government would be actually able to means-test it.”
The ex-DWP staff member has penned a letter to the Chancellor of the Exchequer, Rachel Reeves MP, expressing worries about the “scare-mongering” speculation.