State pensions should be axed for rich pensioners

OECD says rich pensioners don't need their state pension. Is this fair?

Wealthy pensioners

The State Pension should be scrapped for wealthy pensioners, according to the OECD. It claimed that it was crazy to keep giving pensions to people who had plenty of money set aside for retirement, when the money could be spent more effectively elsewhere.

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An official from the OECD suggested withdrawing the state pension for the richest 5%-10% of pensioners in a conversation with the Financial Times. Alternatively, they said, workers would need to pay more cash into state pensions, or state pension ages would need to keep rising.

The group argues that the move is logical, because it would free up cash that could be spent on people on lower incomes. It said: "Giving less to the people at the top would free up resources to increase general benefits."

They have a point. You have to ask whether a pensioner living off £3,000 a month in pensions and investments, is really going to miss a measly £160. Surely that money would do far more good if it was keeping another pension off the breadline.

Backlash

However, the move would be fraught with difficulty. We have become used to the universal State Pension. The fact that everyone builds up the right to a pension through National Insurance contributions feels fair. If you put enough into the system as you go through your working life, you will receive something back from it in retirement.

The change would erode this fairness overnight. In fact, it's those who have put the most into the system who would be least likely to receive anything in return at all - which isn't something many of them would accept without a fight.

To add insult to injury, the change would mean that those who saved the most for their pensions, and sacrificed the most during their working lives to do so, would be punished. Given that the government is trying to encourage people to be sensible about their future, the move would fly in the face of that ambition.

Tom McPhail, head of policy at Hargreaves Lansdown says: "It has the potential to be quite socially divisive and one of the essential and valuable elements of the state pension is the reasonably clear and simple entitlement structure – if you pay your national insurance, you will qualify for it."

The suggestion also ignores the fact that even the top 5%-10% of pensions don't have boundless riches. They have saved carefully so that after factoring in the State Pension, they have enough cash to achieve the lifestyle they have planned in retirement. Removing it would pull the rug out from underneath them, leaving them with a shortfall. You could argue that it's not the end of the world for this group to have to compromise, but that's missing the point. If they have planned and saved for a goal, it's simply not fair to move the goalposts at the last minute.

Fortunately, as McPhail points out, it's very unlikely to happen. Politically it would be a minefield, and given that pensioners are more likely than anyone else to vote, it could destroy a party's chances of gaining power. Undermining the principles of the universal State Pension would be political suicide, so richer pensions don't have anything to worry about .... until politicians get really desperate for cash of course.

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