Labour urged ‘means-test state pension’ to tackle inequality | Personal Finance | Finance

Think tank Intergenerational Foundation is urging the government to make some major reforms to the state pension in order to even out the playing field for younger Brits. Its most recent report notes that between 2004 and 2024, per-person spending on pensioners increased by 55%, compared to just 20% for children. Additionally, it found that young people have fallen behind in seven of the eight policy areas analysed, including housing, labour market, wealth, health and environmental sustainability.

It claims: “In too many policy areas, government spending continues to be disproportionately skewed towards older age groups.” To address these inequalities, the political charity is recommending that the government remove the triple lock mechanism, which increases the state pension sum each year by the highest figure between 2.5%, inflation or wage increases.

It also recommends “introducing modest means-testing” measures for the state pension, which is currently given to everyone once they hit state pension age provided they have enough qualifying years of National Insurance contributions or credits. Specifically, the report suggests looking at people’s income and assets before deciding whether to provide them with state pension to “better target support”.

Other recommendations in the report include reforming the student finance system, removing the two-child benefit cap and equalising minimum wage for all workers aged 18 and over. The report concludes: “Despite becoming more educated, young people today face higher levels of unemployment, greater job insecurity, and relatively stagnant wages. They are less likely to own a home and more likely to spend the majority of their income on essentials.

“At the same time, they are saddled with rising student debt burdens and face high marginal tax rates. Pensioner poverty has halved, while child poverty remains persistently high. Without reform, these age-based inequalities will likely continue to widen, especially given the UK’s ageing population.”

Earlier this year, one of the foundation’s economists theorised what a state pension reform could look like to benefit the younger generation. This includes a “double lock” system to replace triple lock, which would increase state pension each year according to either the wage increases or inflation.

As for means-testing, the expert recommended looking at Australia’s system: “The government guarantees a minimum level of income in retirement but adjusts payments based on an individual’s income and assets.”