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Means-Testing “Slippery Slope” For Pensions


Nick Clegg’s initiative to introduce means-testing for state pension benefits has been met with criticism by many industry observers. The Deputy Prime Minister’s proposals include potential cuts to a range of pensioner benefits, such as free bus passes, television licenses and the winter fuel allowance. The move comes in the wake of new figures which reveal 300,000 more people will face fuel poverty throughout winter along with steep hikes in energy prices.

“Money should not be paid to those who do not need it” said Clegg.”I just don’t think it’s justifiable, when so many people are tightening their belts, to say multi-millionaire pensioners still receive universal benefits across the board.”

Critics have hit out at the Lib Dem leader – with a spokesperson for the David Cameron pointing out “The Prime Minister made a commitment to protect those benefits and he believes in keeping his promises.” Saga director general, Ros Altmann, called the move a “slippery slope to undermining our whole pension system”:

“It would punish those who have tried to be self-reliant and give much more money to those who have not saved for their future” said Altmann. “And then what’s next? Will he tell us rich pensioners don’t need a state pension either?”

Clegg’s proposal comes at a time when confidence in pensions is ebbing – and millions of people are neglecting to save  for retirement. With a pensions crisis on the horizon, Altmann stressed the importance of avoiding “hasty knee-jerk policies that could have very damaging long-term consequences” – and strongly de-incentivise people from saving for their future.

Problems and solutions…

Problems with means testing, Altmann says, are numerous – not least of which is the cost and complexity of administrating the process. Independent pension scheme trustees find themselves under constant pressure to perform their fiduciary duties – and do so in an extremely uncertain economic climate. The state pension administrators face a similarly long list of extremely difficult problems – introducing a new level of administrative work, in order to calculate and distribute means-tested benefits, will only add to the burden.

A move to means-testing, Altmann points out, could also introduce a dangerous precedent, leading to further pension cuts in the future. She outlines a number of alternative strategies, including the taxation of some levels of occupational pension payments – and even raising the age of pension eligibility and commencing payments later. Altmann also points out the success of certain schemes which allow for ‘pension donations’: normally part of a community support network, pension “recycling” allows pensioners who don’t need the money to “help others struggling to
stay warm in winter”.

Altmann sees “strong reasons why universal benefits are needed”, but stresses the most significant improvement which could be made is “radical reform” of  the current system to insure people don’t need “freebies to avoid poverty”.

Like many industry professionals, Altmann wants those who save for retirement to avoid penalties for doing so – and sees means-testing as a threat to both wider confidence in the pensions system and attempts to promote self-reliance.



My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.

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