Andy Burnham has been told he could save £1 billion by means-testing the state pension, a proposal put forward by Dan Neidle from Tax Policy Associates. The idea aims to block the wealthiest pensioners from receiving the benefit, but Neidle cautions it may be unjust and politically challenging.
Proposal Details
Dan Neidle said: "It’s easy to think that’s an irrelevant amount to wealthy retirees, and we should means test the pension to stop them benefiting." However, he explained that the seemingly simple solution overlooks the true value of the pension. "Given the Government spends over £150bn each year on pensioner benefits, blocking even just the wealthiest 1% from pensions would raise over £1bn. It seems a slam dunk. But that makes an elementary mistake – a pension of £12,500 per year, updated with the 'triple lock', is actually a highly valuable asset."
Wealth Impact
Neidle noted that the average 66-year-old would need over £250,000 to purchase an equivalent asset. "A family 'just' in the wealthiest 1% has average assets of £1.9m per adult. So removing their pension would effectively expropriate over 10% of their wealth. That feels unjust. I doubt any Chancellor would do this."
Alternative: National Insurance for Older Workers
Another option proposed for Burnham, the new Labour MP for Makerfield, is extending National Insurance contributions for workers over State Pension age, which could raise around £1.5bn. Neidle explained: "National Insurance has one of the strangest features of the UK tax system: once someone reaches State Pension age, they usually stop paying employee National Insurance, even if they carry on working." The same applies to the self-employed, who stop paying Class 4 NICs from the start of the tax year after reaching State Pension age.
Employers, however, continue to pay employer NICs on employees over State Pension age. Neidle argued: "There is no principled reason for this. National Insurance is often presented as a contribution towards contributory benefits, but really it’s just another tax on earnings. A 66-year old employee and a 65-year old employee doing the same job for the same pay should face the same tax treatment. I and most other tax policy people would strongly support this change."
Political Courage Needed
The question, according to Neidle, is whether Burnham has enough political courage to face down a highly motivated and significant voter base. The proposals highlight the difficult trade-offs in pension reform, balancing fiscal savings against fairness and political feasibility.
