DWP means testing State Pension may be Rachel Reeves ‘wizard’ answer | Personal Finance | Finance
An ex-MP and money expert has warned that Rachel Reeves may have a “wizard” solution to funding the State Pension. Former MP Lord Mackinlay of Richborough says the chancellor might look to means testing the benefit in a major move away from the current policy.
An ageing population along with rising pensions payments has led to an increasing financial burden on the State to fund the payments. The UK government’s annual cost for the State Pension is projected to be about £146 billion in 2025-26, making up more than half of total pensioner benefits, which are forecast to reach £177.8 billion in the current financial year.
However, writing in The Telegraph, the peer raised concerns over the viability of the current system given Britain’s increasingly elderly demographic alongside intergenerational fairness. He said while poverty has “significantly reduced” as a result of the triple lock mechanism together with state pension reforms, he questioned whether this could continue without change
The former MP for South Thanet, who is now a member of the House of Lords, posed several key questions. He said: “Can the increasingly top-heavy population age pyramid – which is heading towards two workers per pensioner (vs 4:1 in the 1960s) – generate enough tax to support the retired? Is the current plan for a retirement age of 68 beyond 2046 enough? What about the escalating cost of healthcare across an ageing population?”
“So what will Rachel Reeves do? She’s currently facing the conundrum of what to do about tax from April 2027 when the state pension will exceed the frozen personal allowance of £12,570 a year. After 100 years of universality, perhaps means-testing will be her wizard solution. Doing so could become another uniquely bad British incentive to drop out and rely on the state,” reports the Mirror.
Lord Mackinlay of Richborough is a former member of both the DWP and Public Accounts Select Committees. He has significant expertise in financial matters as he is a chartered accountant and tax adviser.
In 2023 he underwent a quadruple amputation after contracting sepsis. He step down from his parliamentary seat ahead of the 2024 general election, and is now a member of the House of Lords.
The peer set out his own solution to resolving the pension funding issues, stating: “My solution was a “less for longer” system that would give early access to the state pension but at a lower level, based on actuarial life expectancy.”
At present State Pension entitlement is determined by the amount of National Insurance someone has paid. Currently, State pensioners receive £230.25 weekly.
Through the triple lock mechanism, which ensures the pension rises each April by whichever is greatest among three criteria – inflation (CPI), average earnings growth, or 2.5% – this sum is set to increase to £241.30 weekly for those claiming the full new State Pension. Recipients of the basic State Pension will receive £184.90 weekly.
