Ex-DWP employee identifies key reasons State Pension cannot be means-tested by UK Government
Pensions Minister Torsten Bell confirmed last month that the State Pension will not be means-tested in the future after growing speculation on social media hinted that the contributory benefit would be the next to be reviewed by the Labour Government.
Under the Triple Lock, the New and Basic State Pensions increase each year in-line with whichever is the highest between average annual earnings growth from May to July, Consumer Price Index (CPI) inflation in the year to September or 2.5 per cent. Deferred State Pensions and additional elements rise by the September CPI inflation rate.
Around 55 per cent of social security expenditure goes to pensioners - in 2025/26 the Department for Work and Pensions (DWP) will spend £174.9 billion on benefits for pensioners. This includes spending on the State Pension which is forecast to be £145.6bn over the current financial year.
As the costs continue to rise, the topic of means-testing will no doubt surface again, however, former DWP employee Sandra Wrench, who has 42 years' experience dealing with benefits including the State Pension, says it would be 'virtually impossible' to means-test the State Pension due to the different administration structures for the New and Basic State Pensions.
Mrs Wrench told the Daily Record: 'There are two main barriers that the Uk Government would face if they did go down this path and why it makes it virtually impossible to means-test the State Pension.
'I worked on the State Pension section at Bedford DWP for 18 years, and when you actually process claims for the State Pension, you have a greater understanding and knowledge of the benefit.'
Voluntary Contributions paid by way of cash
You can fill in gaps in your National Insurance (NI) record by paying cash into the State Pension scheme by way of Voluntary Contributions.
Mrs Wrench explained: 'You are not going to pay cash into a scheme unless you can get your money back. We look at the recent time extension for the payment of Voluntary Contributions from 2006, where the deadline was originally April 5, 2023, but this was extended by the UK Government to April 5, 2025, so they are still actively encouraging the payment of Voluntary Contributions.
'Would they be doing this if they were going to means-test the State Pension? The answer is no.'
She continued: '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.
'State Pension is based on the NI contributions you pay from age 16 to State Pension age - typically, a period of 50 years - so some people may have paid Voluntary Contributions 20/30 years ago for a period in the future.
'It is unlikely that HMRC would retain detailed payment details of Voluntary Contributions, both Class 3 and Class 2, paid all those years ago, even though the NI record will confirm that Voluntary contributions have been paid, which count towards qualifying years.'
The DWP insider highlighted how if the State Pension was means-tested, would HMRC be able to refund NI contributions from all those years ago?
Mrs Wrench said: 'In a nutshell, the answer is probably no, unless the customer had kept detailed records of all payments made for past years.'
She continued: 'I myself paid a substantial sum into the Additional Pension Top Up scheme for those who were State Pension age before April 2016, and this scheme ran between Oct 2015 and April 2017.
'Due to the higher rate of Basic State Pension for the New State Pension, currently £230.25 a week, this gave those pensioners who were State Pension age before April 2016 with the lower amount of Basic State Pension, currently £176.45 a week, the opportunity of purchasing up to £25 a week additional pension to help bridge this gap.'
It's important to note that the Additional Pension uprates annually under the CPI measure of the Triple Lock.
Additional Pension (1978-2016) and contracted out employment
The Old?Basic State Pension scheme consists of three parts:
Basic State Pension - paid on the number of qualifying years which you have
Additional pension - first known as SERPS (State Earnings Related Pension Scheme) from 1978, then known as the Second State Pension from 2002 to 2016, and it was the additional State Pension scheme you could contract out
The Graduated Retirement Pension which existed from 1961-1975
Mrs Wrench explained that with 'contracted out' employment, your additional pension is paid with your occupational pension as opposed to being paid by the state.
She continued: 'DWP have admitted and confirmed in writing that they do not know the exact amount your scheme will pay you as a result of contracting out as it will depend on the actual rules of your private scheme.
'So DWP would have to estimate the amount of additional pension in pay for State Pension purposes, if that person had been in contracted out employment. So how can you means-test an amount which is estimated?
'DWP have stated that the pension you get from your workplace or personal pension scheme for the periods you were contracted out, should include an amount that, in most cases, will be the equivalent of the Additional State Pension you would have got if you had not been contracted out, and this amount is known as the Contracted-Out-Pension-Equivalent (COPE).
'DWP will know how much Additional Pension you would have got if you had not been contracted out, but this figure will be distorted once it is incorporated into an occupational pension scheme, via contracted out employment.'
Contributory and Non Contributory Benefits
Mrs Wrench explained how non contributory benefits are funded by general taxation and do not depend on NI contributions, and are benefits such as Attendance allowance, Carer's Allowance, Child Benefit, Universal Credit and Personal Independence Payment.
Contributory benefits are funded by NI contributions and include benefits such as Jobseekers Allowance, Employment and Support Allowance, State Pension and Statutory Sick Pay.
Mrs Wrench said: 'You could understand non contributory benefits being means tested, such as Universal Credit, but you would be hard pushed to start means testing contributory benefits, such as State Pension, as the payment of these depend on NI contributions paid by the public, and the public have paid into the scheme.
'With means testing, you are paid the benefit on a temporary basis, and if your circumstances change, the amount of money you are paid could fluctuate. The last thing you want when you reach retirement is fluctuating income, and the anxiety which accompanies this .
'At least with the State Pension, you receive what you are entitled to, know exactly how much money you have coming in a month and know exactly where you stand financially'
She added: 'To mention means-testing the State Pension may cause concern for some people, particularly when their State Pension may be their main source of income, but for the reasons mentioned above, it is highly unlikely that the government would be actually able to means-test it.'
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