Articles - Will the State Pension ever be means tested

 By James Jones-Tinsley, Self-Invested Pensions Technical Specialist, Barnett Waddingham

 At the heart of the crisis is a demographic transformation. The UK’s population is ageing rapidly. Fewer workers will be contributing to support an increasing number of retirees.

 This demographic strain has made it increasingly difficult to maintain current benefit levels without placing immense pressure on taxpayers or cutting public spending elsewhere. The state pension age (SPA), currently set at 66, is anticipated to be reviewed (again) within the next 18 months.

 The political cost of reform
 "94% of pensioners view the state pension as an ‘entitlement’, not a benefit."

 Despite the economic logic, any attempt to reform the state pension carries significant political risks. Many pensioners rely on it as their primary income source – with 44% of over-66s depending on it for more than half of their household income. For 13%, it comprises nearly their entire income.

 Such expectations make reform difficult. Recent attempts to reduce benefits like winter fuel payments or disability allowances have proven politically toxic. Any effort to roll back state pension entitlements will undoubtedly meet with resistance from older voters – a historically powerful electoral group.

 Is the triple lock sustainable?
 "Maintaining the triple lock could cost up to £40 billion per year by 2050."

 One of the most controversial issues is the 'triple lock' – a policy that ensures the state pension rises annually by the highest of inflation, average earnings growth, or 2.5%. Introduced in 2010, it was designed to protect pensioners’ incomes in real terms, but its long-term cost is spiralling.

 The IFS suggests scrapping the triple lock once the state pension reaches a defined target – for example, 33% of average earnings. After that, pensions would rise in line with earnings growth or inflation, whichever is higher. This approach would make increases more predictable while still protecting pensioners’ purchasing power. The IFS estimates this model would cost an extra £15 billion annually, saving £5.5 billion compared to continuing with the triple lock indefinitely.

 Raising the state pension age
 "Without reform, the state pension age could rise to 74 by 2069."

 If the triple lock is retained without other changes, the only viable alternative may be to raise the SPA significantly. IFS modelling shows that to keep pension spending below 6% of national income SPA would need to rise to 69 by 2049 and to 74 by 2069.

 This would disproportionately affect those who retire early. Currently, 62% of people stop working before reaching SPA, often due to ill-health or redundancy. Delayed access to support could lead to greater financial hardship.

 Private pensions: A growing shortfall
 "20% of private sector employees and 80% of self-employed workers are not saving into a private pension at all."

 Private pension saving in the UK is worryingly low. Many workers are on track to fall short of the Pensions UK (formerly PLSA) 'minimum' retirement standard of:

 £13,400 a year for individuals.
 £21,600 for couples.

 IFS reform proposals at a glance
 To address the growing strain, the IFS recommends a package of reforms:

 Replace the triple lock – Once the pension reaches a set level (e.g. 33% of average earnings), link increases to earnings growth or inflation.
 Rationalise pension age increases – Tie future SPA changes to life expectancy.
 Boost private pension contributions – Employers to pay 3% even if employees don’t contribute.
 Extend auto-enrolment – Lower the entry age to 16 and raise contributions, especially for higher earners.
 Support the self-employed – Use the self-assessment tax system to integrate pension saving.
 Enhance means-tested support – Increase take-up of existing support and extend Universal Credit access to those nearing retirement.

 "These proposals could generate an additional £11 billion annually in private pension savings."

 Political will and public awareness are crucial
 "Pensions need long-term planning and, ideally, a broad consensus." David Gauke Former Work and Pensions Secretary

 The IFS report calls for long-term thinking and cross-party collaboration. Former Work and Pensions Secretary David Gauke, who chaired the IFS steering group, stressed the need to make pensions an apolitical issue.

 What should individuals do now?
 "Private pensions, savings, and tailored retirement strategies will become increasingly essential."

 Toward a balanced retirement system
 The IFS findings show that financial security in retirement is slipping out of reach for many, particularly younger generations and the self-employed. Without meaningful reform, the UK risks creating a two-tier retirement system – where current pensioners enjoy relative stability, while future retirees face longer working lives and lower incomes.

 The UK’s state pension system stands at a crossroads. With an ageing population, declining birth rates, and rising costs, the current structure is unsustainable.

 The triple lock, once seen as a safeguard, now poses fiscal risks. Raising the SPA or introducing means-testing – as countries like Chile have done – may become necessary.

 By facing these challenges with a balanced mix of reforms and political will, the UK can build a fairer, more sustainable retirement system for generations to come.