A new year and more pension news, this time from the Institute of Economic Affairs (IEA) who are calling for state pensions to be means tested and to be replaced with a system of compulsory savings.
In a paper on Income from Work, the IEA says the state pension “crowds out” private schemes and should be scrapped. It calls for an Australian-style system of compulsory auto-enrolment and for the state pension to be means-tested to provide support for the poorest.
It also calls for more rapid increases in the state pension age to 68 for men and women by 2023 and then linked to life expectancy. The Treasury currently plans to increase the state pension age to 68 in the mid 2030’s and to 69 by the late 2040’s.
Additionally, the paper highlights falling levels of unemployment in older people and examines ways to find more work for the over 55s.
It argues the Treasury could save billions by reducing incentives to retire early and allowing people to work past retirement age. It calls for tougher tests for disability benefits as well as curbing trade union power among older workers.
It states: “Since public pension schemes crowd out personal savings and also produce incentives to retire earlier, it would be highly advantageous to move towards a privatised pension system in which citizens are given more responsibility to save for their own retirement.”
Earlier this week, Prime Minister David Cameron said he would keep the triple lock on state pensions until 2020 meaning they will rise in line with earnings, inflation or 2.5 per cent, whichever is highest.
Whilst there aren’t many who would welcome means testing of the state pension, it serves as a reminder that there has never been a better time to review your retirement goals. It is vital to fully investigate your options. This can mean better fund performance, lower charges or a higher income in retirement.