Despite recent speculation, Torsten Bell confirms that both the state pension and triple-lock are safe from major reform
The state pension will not be means-tested under Labour, Pensions Minister Torsten Bell has confirmed.
Speaking exclusively to The i Paper at the Pensions and Lifetime Savings Association (PLSA) conference in Edinburgh on Tuesday, Bell dismissed the idea of introducing means-testing when asked, stating: “No, only Kemi Badenoch thinks that’s a good idea.”
He also confirmed that he has no plans to scrap or amend the state pension triple-lock, which ensures pensions rise annually by the highest of inflation, average earnings, or 2.5 per cent.
Currently, the full new state pension is worth £221.20 per week (£11,502 per year), and under the triple-lock, this will rise by 4.1 per cent in April to £230.30 per week (£11,975 per year).
Asked whether reforming the triple-lock was being considered, or abandoning it all together as they are considering on the Isle of Man, Bell replied “no.”
His comments come amid renewed debate about the sustainability of the triple-lock, which was introduced by the coalition government in 2010, and whether means-testing the state pension could target resources more effectively.
Means-testing is a system where pension payments are assessed based on an individual’s income or savings, reducing payments for wealthier retirees.
Countries including Australia and Canada have adopted means-tested pension models, where state support is targeted at those most in need.
Conservative MP Kemi Badenoch previously suggested means-testing the state pension as a way to control spending, sparking backlash from some critics which argued that such a move would undermine the principle of universal support for retirees.
According to the Office for Budget Responsibility (OBR), the state pension system costs UK taxpayers £125bn a year – and that figure is set to rise significantly in the coming decades, which experts at RTS financial planning think “may force the Government into making tough decisions”.
A recent blog post from financial planners RTS touched on this. It read: “The rising costs are unsustainable.
“By 2045, the number of pensioners is projected to skyrocket, and the state pension could swallow an even larger chunk of national spending.”
While the triple-lock has improved pensioner outcomes, it is costly and less targeted than some alternatives, it said.
The pledge costs an extra £11bn per year, the Institute for Fiscal Studies (IFS) previously said.
Recent IFS analysis warned that the triple-lock could make pension spending unpredictable and urged policymakers to consider linking pension rises to earnings growth alone.
The Organisation for Economic Co-operation and Development (OECD) has similarly called for reforms to ensure the UK’s pension system remains financially sustainable in the long term.
On the broader pensions landscape, Bell addressed ongoing responses to the inheritance tax (IHT) on pensions consultation.
When asked if there would be any changes to the Government’s approach following the feedback, he said: “We are not going to be changing the approach to the consultation on the detail.
“We’re going ahead with making sure that pensions are used for their intended purpose — the clue is in the title.”
Bell, who was appointed in January this year, described how the Noughties presented a challenge of ensuring that people continued to build up pension savings.
He said: “Policy provided the answer in the form of automatic enrolment.
“Solutions were found, and that should give us confidence for our own challenges today. But … we took too long to find innovation in the face of a chronic problem, rather than a crisis.”
Turning to the current landscape, Bell identified the primary challenge as ensuring pension savers get better returns on their investments.
“I agree the level of contributions is an issue, but … today’s problem is, how do we deliver better returns to savers so they can have a decent standard of living in retirement without asking any more that is necessary of their standard of living in the here and now?”
He stressed that ensuring strong returns is essential before focusing on raising contribution levels, adding: “That’s why phase one of the pension review on the landscape, and the pension bill, will help reduce costs in the system and put accumulation on a firm footing. This must come before phase two on adequacy.”
Warning that the damage caused by poor investment returns should not be underestimated, Bell described it as “just as destructive” as pension scheme failures.
He explained: “The damage done by poor returns, including during the accumulation phase, maybe feels less binary and catastrophic than the risk of Maxwell-style vanished promises. It is a mistake to underestimate its impact on savers.
“So that, for me, is today’s exam question. We’re making good progress, and I look forward to answering it with all of you over the months and years to come.”
