Will Starmer and Reeves Steal Your State Pension This Autumn ?

Please excuse the rather hard-hitting question in the title of this blog, but needs must - this is potentially pretty serious, partcularly if you're one of our many hard-up pensioners…..

The Labour leadership is getting desperate now, and as we all know, desperation often leads to serious mistakes…this certainly would be a monumental one.

OK, what's all the fuss about ?

There are a number of evil rumours abound in the media (and not just the socials) that Reeves is now actively considering means-testing the State Pension in October as part of her 'Black Hole filling' project.  The Inter-generational Foundation think tank is reported to have gone as far as recommending it to government as a way of  "..distributing resources more fairly between the generations..".

Starmer has already been challenged on why he has allowed the tax threshold freezes to bring some pensioners, who have the state pension as their sole income, into the basic rate tax net at all. Moreover, Starmer and Reeves have both refused even to consider removing the pension from the tax system altogether, or adjusting thresholds, and neither will commit to exclude the possibility of means testing.

Why on earth would any chancellor even think about risking this, though, let alone one as unpopular as Reeves ?

As anyone who hasn't been living on Mars in the past month will know, Labour's back-benchers have effectively forced Starmer into a major U-turn on PIP payment eligibility, his third upset in as many months. This, together with the back-bench enforced partial reversal on Winter Fuel eligibility, has created a new £4.5Bn new ‘black hole’ (seemingly not yet labelled a Tory one, but give it time!) in the finances which must be filled if Reeves is to satisfy her self-imposed fiscal rules without raising taxes and breaking manifesto commitments. Given the size of the pensions bill, means testing it might well look like a 'juicy' target for some extra revenue...and one which might actually get past the back-benchers.

But isn’t this just scare-mongering by certain sections of the media ? Surely the leadership  must have learnt their lesson by now ?

Regrettably, I somehow doubt it…..

After the blow to his reputation administered by the Winter Fuel row and the humiliating climb-down it entailed, Starmer is so ‘anti-pensioner’, and now so ‘anti-benefit claimant’, that anything is possible, including a politically suicidal move such as means testing our universal pension entitlement.

Reeves, on the other hand, is desperate to stick to her self-imposed fiscal rules, and to avoid breaking manifesto promises by raising income tax or employee NI contributions, and so might just go along with it just to ‘make ends meet’ in October. Despite recent protestations by Starmer to the contrary, her job must also be at stake if the economy doesn't start to improve soon.

If the 'terrible duo', as they have been dubbed, do attempt to means test the pension, they and their party will be in a ‘whole heap of trouble’, and not just politically either. 

Why ? 

To answer this, we need first to look back at the post-war history of pension and healthcare provision in UK.

National Insurance (NI) is a compulsory contribution by the individual to state finances which was introduced in the late 1940s specifically to fund the newly formed NHS and provide old-age pensions for all. NI is paid by all employees, whether self-employed or not and is used to build up our personal ‘contribution record’ as an entitlement to these two benefits. The exact amount we pay in is related to our level of wages, but for someone on an 'average' salary of £35k, this would work out to ca 5% of their total earned income at current rates.  

In effect, by contributing we all have an unwritten contract with the government to provide us with free healthcare via the NHS and a State Pension (currently this is payable after we reach age 66) in return for our NI salary deductions. The state pension amount we actually receive is dependent on an individual’s contribution record over their working lifetime, thus tying the pension benefit directly to money paid in. NHS healthcare entitlement is not directly related to contributions per se, but access to all but emergency care is nominally limited to those with a UK residency and a minimum contribution record. Not all NHS healthcare is free, of course, with dental and prescription charges normally payable by most of the working age population.

Thus we have all paid into the system to some extent, and any attempt to withdraw the state pension entitlement from anyone who has contributed NI during their working lifetimes (i.e. anybody who has worked for the minimum contribution period) would open UK.Gov to legal challenge. The courts would be far more likely to uphold such challenges than they were those levelled against them on Winter Fuel regarding inadequate consultation. This is because Winter Fuel payment is a deiscretionary benefit, whereas NHS healtchare and the state pension aren't. Much larger sums of money are also involved, and the livelihoods of many of our less well-off senior citizens depend on it. There is an additional factor to be considered – higher earners will have paid in considerably more NI over their lifetimes, but don’t get any extra pension when they retire. Thus depriving them of any benefit at all without their agreement would be a double ‘moral and financial sin’ on the part of any government, and retribution at the ballot-box would be inevitable.

Let’s look in more detail at some of the other implications:

1)  1)     Would means testing be feasible without major expense ? Yes - now we know that Winter Fuel is to be 'clawed back' by HMRC from anyone earning over £35k, the same threshold could easily be applied to state pension eligibility, once the appropriate mechanism had been introduced. Assuming a similar cutoff threshold were applied as for winter fuel (i.e £35k p.a.) DWP would continue to pay out the nominal pension entitlement, and HMRC would then add the same amount to its tax deductions for any individual over the £35k earnings limit in that tax year.  This is indeed one of the reasons for the current nervousness amongst pensioners – i.e. it would be relatively easy to implement additional means testing on a range of benefits which are currently universal, so the leadership might well want to risk it. There is, however, a significant ‘hidden’ catch which we didn’t see with winter fuel because of its relatively low monetary value – (see point 2 below):

2)    2)   The full pension is now ca £12k, thus someone with additional earnings of ca £23.1k from, say, a small workplace pension, taking them just above the £35k limit, would find themselves losing a large slice of their existing post-tax income. Thus their new total tax bill would be £14.1k, with a residual income of £20.9k i.e. a tax burden of 40.3%. Someone just below the limit on the other hand would pay just £4500 in tax and be left with a residual income of £30.5k i.e a burden of 12.9%. This obvious unfairness would have several consequences as detailed below.

3)   3)    There would be an immediate outcry from a large proportion of the pensioner population in response to any form of pension means testing, the like of which would, I suspect make the Winter Fuel backlash look like a ‘walk in the park’ for Starmer and Reeves. Left-leaning back-benchers, having already got a 'taste of power' twice already would almost certainly rebel in even larger numbers; £35k is certainly not a princely income in retirement nowadays, particularly since even at this income level you miss out on most additional benefits. MPs would anticipate hardship amongst their older constituents, and thus fear for their re-election chances if the measure were introduced. Claims of a 2-tier system with an arbitrary cut-off would also be levelled by some, as it already is the case of Starmer's original 'compromise' solution on PIP restrictions.

4)    4)   The measure would massively dis-incentivise pension saving amongst the younger working age population – why on earth would you bother building up a workplace pension if doing so was going to lose you your state pension entitlement ? Remember, these are just the people UK.Gov needs to build up workplace pensions to allow governments to justify raising the retirement age and reducing the state pension bill in future.

5)    5)   It would almost certainly add to the overall  benefits bill by taking some below the pension credit threshold – for example, a couple without significant savings might well become eligible for pension credit once they lost their joint state pension entitlement of £23k, leaving them with a residual income of only £12k, i.e. well below the current £18k Pension Credit (PC) threshold for a couple. As we saw with Winter Fuel, each and every new PC claimant can claim up to £4k in extra benefits. Although it’s difficult to work out exactly how much would be lost to the treasury, these additional PC claims would take a significant slice out of any savings made by clawing back some or all of our pension entitlement by means testing.

6)    6)   It would lead to active attempts amongst pensioners to reduce their income from other sources – those with non-annuity style retirement savings income products would be tempted to lock away their cash for the time being in non-income generating savings products, thus allowing them to reduce their total income to below the threshold and keep their state pension – this would, of course, reduce their overall tax-take into the bargain.

7) 7) No other country in Europe means-tests its state pension. Even in Australia, which does apply a means test, the basic pension level is significantly higher than those in UK, and any reductions are on a sliding scale with a higher salary cutoff. Thus a basic pension provision comparable to ours is still provided to most, with supplementary payments also being made available for those on lower incomes.

Thus not means testing the State Pension would seem therefore to be a 'no-brainer'.

If such a measure were adopted in this October’s budget, it would almost certainly obliterate the already slim chance of a Labour second term, whoever is fortunate (or is it unfortunate ?!) enough to be at the helm in the run up to 2029; it would, I suspect, also put the current leadership in immediate jeopardy of a no confidence vote from its back-benchers long before then. It would also be likely to provide less revenue than might be anticipated, as happened with Winter Fuel.

But, as we’ve seen on several occasions recently, the leadership don’t necessarily think rationally about imposing ‘flagship’ measures they decide need to be forced through. 

It is reassuring, however, to see the good sense of at least some back-benchers is effectively imposing checks and balances on leadership excesses, despite (or is it perhaps because of?) their remaining 160+ seat majority. Starmer’s failure to purge the candidates list of left wingers last June may yet save it from 'terminal' errors.….let's hope they don't all 'defect' to the 'Nouveau Corbynite' party.

One hopes the leadership and their close advisors do have the good sense to realise the implications of what they might be considering this time, and have learnt the important lesson from their electoral punishment so far i.e:

Don’t mess with pensioner benefits…it will come back to haunt you…. Always.

First published 28.6.25

Revised 7.7.25