Raise state pension and means-test it, says former Bank official
The next government should increase the state pension and potentially consider an element of means-testing, a former Bank of England economist has said.
David Blanchflower, who sat on the Bank of England’s rate-setting Monetary Policy Committee, said that for those solely reliant on the state pension, its level was “very low”.
But he said this was “not so much” the case for those with significant private pensions who owned their own home.
Mr Blanchflower said the higher costs could be paid for by raising taxation on people who earn more than twice the national average earnings.
“I think there is a major poverty issue in the UK. For those solely dependent on state pensions and other benefits the levels look very low – not so much for those who own their houses and have private pensions,” said Mr Blanchflower (inset).
The current level of the full new state pension is £10,600 per year, though this is set to rise to around £11,502 in April, under the triple lock policy.
This policy dictates that the state pension rises by the highest of average earnings growth, inflation, or 2.5 per cent each year. There have been questions over its affordability, with the Institute for Fiscal Studies (IFS) saying it could cost an additional £45bn a year by 2050 in today’s terms.
But it is expected that the triple lock on state pensions will be in both the Conservatives and Labour party manifestos at the next general election.
Currently, there is no meanstesting to the state pension, with people getting the full amount if they have 30 qualifying years of national insurance contributions or credits. Other benefits available in retirement, such as pension credit, are means-tested. Any move to means-test the state pension could be politically dangerous.
But Mr Blanchflower said: “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 meanstest it. It isn’t that pensions are too low, it is they are too low if that is the only income you have.”
According to research commissioned by the pensions industry, a single person will need to be able to spend about £14,000 a year to achieve the minimum living standard in retirement, which is higher than the state pension level.
Mr Blanchflower said the changes he was proposing could “easily be paid for by taxing those, say, on incomes above double average earnings”.
But Tom Selby, director of public policy at investment platform AJ Bell, said: “Means-testing the state pension is a nice idea in theory but once you get into the practicalities, it could become a bit of a nightmare.”