Martin Lewis thinks it is possible that State Pension could become means-tested in the future, although he considers it an « unlikely » scenario. On this week’s edition of the Martin Lewis BBC Podcast, he discussed the implications of such a change, labelling the potential scrapping of the State Pension as a « shocking decision » and vowing to fight against it with full force.
During a special episode, focused on State Pensions, Martin provided listeners with tips on how to boost their pension pots by plugging any holes in their National Insurance contributions. A concerned listener named Sue brought up her father’s dilemma of needing to spend £8,000 to purchase additional NI years and the risk of the State Pension being means-tested.
In response, Martin said: « As I always say when asked about gazing into the future, Parliament is omni-competent. Parliament can choose to do anything. It can choose to make the State Pension means-tested, I think it would be a very interesting question if it did make the State Pension means-tested – what would happen to people who had paid? «
He further commented: « I think it is unlikely but that is unlikely looking through my 2024 eyes. In a totally different world in 2040 I can’t make the prediction of whether these things will or won’t happen. I think there would be a big issue of justice if it were to happen, the State Pension has never been means-tested. »
Martin highlighted the unpredictable nature of life, especially in financial matters and the possibility of means-testing State Pensions, and added: « There’s always a chance. Do I think it’s likely? No. » Martin then expressed his vehement opposition to such drastic changes: « That would be shocking, I would be campaigning against it vociferously. »
The Department for Work and Pensions (DWP), tasked with managing the State Pension for over 12 million individuals in England, Wales, and Scotland, as well as expats, remains at the forefront of this issue. A former DWP official, with a vast 42-year experience in benefits administration including the State Pension, has revealed key reasons why significant changes to the State Pension are unlikely, particularly due to the reliance on National Insurance qualifying years for its valuation.
Any potential modifications are expected to primarily impact the method used to calculate the annual increment under the triple lock mechanism. An insider told the Daily Record: « What is overlooked is the fact that people pay cash into the State Pension scheme in the form of Voluntary Contributions. So you are not going to pay cash into a scheme unless you are entitled to the payment of that benefit. »
They continued by highlighting a potential issue with the means-testing of these benefits: « If the State Pension was means-tested, HM Revenue and Customs (HMRC) would have to refund Voluntary Contributions to those members of the public, who had paid them, but were not entitled to the payment of State Pension. »
They elaborated that the State Pension is based on National Insurance contributions from age 16 up to State Pension age – typically, a span of 50 years. Therefore, people might have invested in Voluntary Contributions decades in advance, bringing up the question: ‘Would HMRC be refunding contributions from all those years ago, if the State Pension was means-tested? In a nutshell, no.' »
The ex-employee also highlighted the complexities due to differences between the Old/Basic and New State Pensions when considering refunds in such cases. They added: « The payment of Voluntary Contributions is still available for the public, making the means-testing of the State Pension not really a viable option. »
They continued: “The payment of Voluntary Contributions is still available for the public, making the means-testing of the State Pension not really a viable option.
“The deadline for paying Voluntary Contributions for tax years 2006-April 2018 is April 5, 2025, and these contributions may well be contributing to a State Pension which may not be claimed for another 18-20 years.”
The benefits expert said another problem with means-testing the State Pension is in contracted out employment – which existed between April 1978 and April 2016) – your additional State Pension is not paid by the state.
They explained: “It is incorporated with your occupational pension, so it may be difficult to actually assess how much State Pension is in pay to a person when part of it is paid with an occupational pension. So it may end up being an administration problem trying to sort this out.
“Even with the New State Pension, any NI record prior to April 2016, which includes any contracted out employment, will be incorporated into the calculation of the New State Pension up to April 5, 2016 when the New State Pension started.”
