Is Burnham about to punish "rich" pensioners?

 Labour tax adviser Dan Needle has suggested to Burnham that means testing the state pension could save £1 Billion to fund more freebies for those on benefits.

I have a serious problem with this. 

Firstly Labour consider a pensioner couple with  a combined gross income of £51,376 to be rich. However the retirements Standards states that for comfortable retirement a couple needs a gross income of £60,600 per year -  which is greater than the threshold Labour consider pensioners to be rich.

If you engage with any adviser for retirement planning they factor in the state pension into the mix.

The current state pension is £241.30 per week per person so assuming the couple have contributed enough then each will receive £12,547 per year which combined is £25,095 per year. That's 41% of the £60,600 joint income to be considered to be comfortable and 48.8% of Labour's rich pensioner threshold.

So means testing eligibility for the state pension could actually leave those who have planned for their retirement worse off that those who have done nothing.

A friend of mine has worked his whole life in the building trade. He didn't however pay in enough national insurance to qualify for a full pension.  No problem - because of that he gets pension credit. Because he gets pension credit he gets his rent paid, his council tax paid and winter fuel allowance.  He's actually better off than another friend of mine who did pay enough national insurance but has to pay his council tax, rent etc....

So I am not many years away from drawing my state pension and I suspect I am exactly the type of person that Burnham will target to not get a state pension.  I have planned on the assumption of a comfortable retirement, made sacrifices and saved hard for my retirement.

In the 8 years left until retirement I would need to somehow save an additional sum equivalent to £25,095.  So annuity rates are £100k to purchase a flat rate  £7,000 per year annuity. So I would need to save an additional £400k in 8 years to replace the state pension.  That would mean I would need to save £50k per year to achieve this - that's quite a lot to achieve.  

I should point out that this is for a flat rate annuity whilst the state pension is index linked (actually triple locked) and to buy something vaguely comparable is £100k for £4,500/yr (capped at 10 years index linked - not until death). So the price has now just increased to £557,000 to replace the state pension which means I would need to save £69,625 per year.  But hang on - there's a pension saving limit of £60,000 per year.  Maybe with my wife we could save £120,000 per year (assuming we could earn that combined income, live day-to-day and pay tax) but she doesn't earn enough to make the same contributions as myself and pension contributions are not transferable between husband and wife.

The root problem is I am now too old to get around some whimsical Burnham idea. I would be forced to continue working probably until I died.

The second problem I have is in 1992, the PM at the time - John Major - decided that state pension was a benefit and not a contractual entitlement. This is the loophole that could potentially allow Burnham to selectively means test state pension. 

So assuming Burnham does do this, I would start a legal challenge - in fact a class action. 

There are a number of areas where I think this could be done

1/ I made national insurance contributions before 1992. Legislation cannot be retrospective therefore any contributions before 1992 must be contractual and entitle me to some proportion of state pension.

2/ I have on a couple of occasions made voluntary NI contributions for missing years into order to have the number of years needed for a full state pension.  These were made on the assumption that  I would be entitled to the state pension.  Had I had the full knowledge that some thief like Burnham would steal £557,000 from me then I would never have made these contributions. I would have put them into my private pension instead.  Looking at my and my employer lifetime NI record I could in fact purchase an index linked annuity giving me £28,759 which is better than what the government is offering with the state pension - I would have opted out from NI.   Anyway from a legal challenge perspective a bare minimum these voluntary contributions should be refunded with interest. I would not have made them if I knew they would be stolen - I don't voluntarily pay extra tax for the fun of it.

3/ Had I known this theft could happen, I would have emigrated and not paid into the system at all.  The government failed to make disclosures about it's plan.  You can download your national insurance contribution record - I suggest you do (print and save).  I could have bought a better pension for my national insurance contributions than the state pension is offering me. Under normal contract law the terms of the engagement are clear for the term on the contract - the government is deciding to unilaterally change the terms mid-term....

4/ The government is running a Ponzi scheme. It is failing to ring fence or invest my pension contributions. The criminals behind this scheme should go to prison.

5/ Just like the waspi women, I think there's a case that the government has given inadequate notice for the changes and that there will not be enough time to compensate.

Watch this space to see what Burnham does....

On a related topic, I would conclude that any  public sector employee who has receives a pension in excess of £25k (apparently there are 115,000 of them) should automatically lose their entitlement to the state pension to be treated on an equitable basis.   There are about 40,000 retired doctors typically with pensions of £50k - they should also lose their state pension.  There are approximately 45,000 retired police officers receiving pensions in exceed of £25k - they should also lose their state pension.  There are 8,000 firemen who get pensions in excess of £25k - they should also lose their state pension. There are 55,000 teachers who get pensions in excess of £25k - they should also lose their state pension.

I suspect Burham would never touch these people - the unions would be annoyed at him. There are of course around 2,000 retired union officials with pensions greater than £25k...