Currently, everyone in the UK who has paid 35 years’ worth of National Insurance contributions is entitled to the full State Pension, no matter what their personal wealth. Under new recommendations, the richest 5% or 10% of retirees would have their right to the State Pension cut so only those who really need it benefit.
Stuart Price, Partner and Actuary at Cardiff-based Quantum Advisory, thinks that although a good idea in principle freeing up wealth to go where it is more needed, the plans could confuse the current system and put people off saving for a retirement.
Stuart said: “On the surface, it sounds like a great idea; take from the rich who ‘don’t really need it’ and give more to the poor, however you don’t need to delve too far to realise the concept is flawed. Firstly, the suggested new system would be complex for the State to administer, far more complicated than what is already in place.
“The Government would need a specific set of requirements for those who are excluded; is it based on income, savings or a combination of the two; would the cut-off be scaled or a cliff edge? In addition, these things never stand still, so there may be the possibility of changes being made in the future to the ‘wealth threshold’ which could see more and more people not receiving the State Pension, similar to what has happened to private pension provision with reductions to the Lifetime Allowance and Annual Allowance. This could ultimately deter people for saving for their retirement provision for fear they will be excluded for saving too much, similar to the problem with means tested benefits.
“I do think there are better ways to redistribute the wealth in this country, looking at taxes for example, rather than an upheaval of the pension system. The current system is easy to explain to people whereas these recommendations would cause confusion and uncertainty. What we should be focusing our efforts on is educating the population on the importance of saving for their retirement and the fact that saving for retirement is less costly than they may think due to the tax and national insurance relief pension contributions can receive.”
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