Measure to limit impact of means testing on pensions could boost saving

Disregarding a modest proportion of private pensions income could help to reduce the resistance to saving that can be caused by means-tested benefits.

The Increasing the value of saving in Personal Accounts: rewarding modest amounts of pension saving, study from the Pensions Policy Institute (PPI) and sponsored by B&CE Benefit Schemes addresses concerns that means testing is deterring retirement savings. According to the study, people should be able to keep the first £12 a week of their pension savings under personal accounts without it impacting their means-tested benefits.†

While there is some resistance from low-to-moderate earners to save for retirement, B&CE commissioned the report in response to its concerns that many people are put off the idea of saving because they may lose their eligibility to means-tested state benefits by doing so and therefore will not receive the full benefit of their savings.

Disregarding a portion of a person’s pension income could remove a discrepancy between the treatment of pension saving and other forms of saving. At present, the first £6,000 of saving in a bank account or individual savings account (ISA) is disregarded from the calculation of entitlement to means-tested benefits, while all income created by saving in a pension is taken into account.

The report examines what it will mean if the first £12 per week of a private pension income is disregarded in any calculations of means-tested benefits entitlements. This means that a single person can save up to an amount equivalent to a total find of at least £6,000 at retirement without this being taken into account when establishing their entitlement to means-tested benefits.

John Jory, deputy chief executive ay B&CE Benefit Schemes, said: “This work shows that the cost of introducing a pension income disregard is small when one takes into account the huge difference it will make to the clarity of message that can be given to people when personal accounts are introduced. The percentage of people who stay opted in to the scheme is likely to be much higher. This principle can be extended to existing employer-sponsored stakeholder pension schemes.”