State pensioners with this income could 'lose' it under 'means-testing'

One of the options for new Labour Party Chancellor Rachel Reeves as she tries to plug a £22 billion black hole left by the Conservative Party is "means testing" the state pension, it has been claimed. The Telegraph newspaper reports of the most radical reforms the party could consider is to “means-test” the state pension.

It would mean that wealthier retirees receive less of it, or are denied the benefit altogether. Sir Edward Troup, one of four tax advisers appointed by Rachel Reeves, suggested last month that the state pension should be means-tested.

Experts have warned that the policy would be “disastrous” for pensioners and undermine the financial bedrock of retirement. If introduced, Labour's Reeves and Sir Keir Starmer may choose to use a “clawback” mechanism, similar to the personal allowance taper.

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The personal allowance of £12,570 is the amount someone can earn tax-free. But once your net income hits £100,000, the allowance tapers down at a rate of £1 for every £2 you earn, disappearing completely at £125,140.

An expert said: “With means-testing, you can set the dials wherever you like. If you’re a higher rate taxpayer in retirement, for instance, by definition you’re pretty well off. The Government could say that for every £2 above a threshold you lose £1 of state pension.

“So if you had an extra £23,000 of income above the threshold you could lose all of your state pension." Labour's plan to scrap the universal £300 benefit has sparked worry for countless state pensioners who may lose vital energy bill support, with millions surviving on incomes of little more than £11,000 per year, unable to claim pension credit.

David Blanchflower, a former Bank of England economist who sat on the Monetary Policy Committee, said in March that a future government would probably need to consider means-testing the state pension. He added: “An incoming government is going to have to means-test stuff. They are going to have to raise the basic pension a lot for the poor, and probably means-test it.

“It isn’t that pensions are too low, it is that they are too low if that is the only income you have.”