Is Burnham about to punish pensioners?

 Labour tax advisor 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 quality 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 saving limit of £60,000 per year.  Maybe with my wife we could save £120,000 per year (assuming we earnt that combined income) but she doesnt earn enough to make the same contributions as me 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.

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 occassions 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 not have made these contributions. I would have put them into my private pension instead.

3/ Had I known this theft could happen, I would have emigrated and not paid into the system.  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 contributions than the state pension is offering me.

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....