The state pension system needs radical change
The long-term trajectory of the UK’s State Pension provision is one of those complex issues which politicians of all parties would prefer to tackle tomorrow, or perhaps next year, but certainly not today. Current debate usually centres round the triple lock, which is understandably popular with pensioners, but demonstrably unsustainable for the long-term finances of the nation.
Domination of the pensions discussion by the triple lock has concealed an equally serious problem which receives very little publicity – the unacceptable poverty that is endured by the 13% of pensioners who have no occupational pension, private pension or other additional funds and whose only source of income is the State Pension and (in some cases) other state benefits. The full rate of the new State Pension is £230.25 per week (£11,973 annually) in the 2025-26 financial year. Pensioners who don’t have a full record of National Insurance contributions will receive less: however, they are then eligible to apply for Pension Credit which will top up their income to £227.10 per week.
It’s easy to demonstrate the inadequacy of this sum: just try drawing up a monthly budget for the above income, and see how much is left over for ‘optional’ expenses like heating, new shoes or a train ticket to visit a friend or relative now and again. For the growing number of pensioners who do not own their own homes, there will also be rent to pay, not all of which will be covered by housing benefit. A recent report by Independent Age (May 2025) provides a detailed analysis of the plight of this neglected sub-group of pensioners.
On the face of it, the triple lock is a lifeline for those suffering this level of poverty. The ostensibly generous increase of 4.8% from April 2026 will no doubt be welcomed by the recipients. Unfortunately, this increase will make little difference to the penurious lifestyle of those dependent on the just the State Pension and other benefits: about another £11.00 a week, giving a total income of £12,547 annually.
A more acceptable level of income (putting affordability to one side for the moment) for the poorest pensioners could reasonably be set at 50% of the median national salary, i.e. around £308 per week or £16,000 a year before tax: this would represent a gross 27% increase for those wholly dependent on pensions and benefits.
Paradoxically, it is the existence of the triple lock as it is currently applied – to all pensioners, regardless of their circumstances - which makes such a substantial increase to the State Pension unrealistic. Because pension funding via the triple lock is universal, the only way that the poorest 13% could be given a 27% increase would be to give all pensioners that rise: an obviously unaffordable proposal.
The answer to this dilemma is to means-test the State Pension, thus directing our finite national resources to those most in need.
Although mainstream politicians are likely to recoil in horror from such a proposal in the manner of the bystanders in a Bateman cartoon, it is hardly a revolutionary idea. For example, the State Pension is means tested in Canada (where pension payments made to the well-off are recovered through taxation) and Australia (where the pension amount is reduced if income or assets exceed certain thresholds).
Means testing is also well-established in many other areas of our UK state provision. The method used to reduce child benefit for high-earners, where a tapered reduction is applied as a recipient’s income rises, could serve as a model for state pension entitlement. The thresholds would need careful calculation for affordability, and ideally any changes should be cost-neutral to the taxpayer.
Along with means-testing, for the increased State Pension to be affordable, automatic indexation via the triple lock mechanism would need to be replaced with an annual increase decided upon by the government of the day, dependent upon economic circumstances. These major changes would of course need to be phased in over a lengthy timescale, to allow reasonable notice for pension planning.
The alternative to the radical reforms proposed above is to seek to reduce the burgeoning pensions bill by extending the age at which it can be claimed. Such a spineless evasion of political responsibility would do nothing to help our poorest pensioners, who were led to believe that the world’s sixth largest economy would make decent provision for their old age.
Tony Evans is a freelance writer, political commentator, and former Ofsted Registered Inspector.
