Means-testing the state pension “could pose significant risks” to older people born before 1959. The Department for Work and Pensions (DWP) could bring in new criteria and eligibility for state pensioners, it has been feared by experts.
Mike Ambery of Standard Life warns one in five people aged 66 or over currently rely on the state pension as their only source of income, according to Royal London. Mr Ambery warned: “I don’t think it would necessarily work here, even though it was mooted prior to the last Budget.”
He highlighted that while means-testing might produce cost savings, the “administrative process of applying is very labour-burdened, as evidenced in Australia.” Mr Ambery said: “Around 95 per cent of Australians have a defined contribution pension and the Compulsion Act 1992 has embedded auto-enrolment.”
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Mr Ambery added: “Australians have difficulty spending their retirement savings, tending to leave some for a rainy day and then that rainy day doesn’t come.” He explained the situation Down Under, adding: “Crucially, it has guaranteed a high employer contribution rate and this is set to rise again in July to 12 per cent, with employees able to contribute on top of that. This has resulted in pot sizes two to three times larger at retirement in Australia than in the UK.
“We need to help Britons with a defined contribution pension build a more substantial savings pot for retirement.” Mr Ambery said: “I tend to think having one pot is a very good idea. The UK Treasury can facilitate this consolidation and the pensions dashboard will help, but that’s some way off, though we could solve the problem quite quickly by having individual consolidation.”
Mr Ambery said: “Experts around the industry have suggested we need to do something as soon as possible. Any delay pushes an issue further down the road.”