I am concerned that means-tested pensions may come through before I retire. What are the chances of that happening? STEVE WEBB answers

I will be turning 63 next year, so I will be approaching retirement at 67.

I have been a single mother for many years and could not afford to pay the pension at work, largely due to starting work later in life and the now high cost of living.

I have no savings and I live from month to month.

However, I have to finish paying off my mortgage on a modest house in a couple of years.

I’m moving to a smaller apartment and for the first time I’ll have some savings in the bank.

Since I will probably receive my state pension in just two years,

I am concerned that those in power at the moment will say that I cannot receive my state pension because I have more than £50,000 in the bank.

What are the chances of this means test being implemented before I retire in four years?

Also, if so, do I have to spend my money before I am forced to live off it? I have paid 40 years of National Insurance contributions.

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Steve Webb answers: Earlier this year I responded to another reader who was concerned about the risk of the state pension becoming means-tested.

In that column, I looked at some other ways a government could control state pension spending instead of resorting to means tests.

But we’ve had a change of government since then and some senior Labour advisers are talking about means testing, so I thought it was worth returning to the topic to ask how likely it is that this will happen.

In recent months, several influential figures have raised the idea of ​​means-testing the state pension. For example:

Former HMRC chief executive Sir Edward Troup, who has advised the new Chancellor on tax policy, told LBC radio: “…if the public finances are in such a tight state, perhaps rich pensioners should give up their full state pension.”

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David Blanchflower, a former member of the Bank of England’s monetary policy committee, said earlier this year: “The incoming government will have to be means-tested.”

‘They will have to significantly increase the basic pension for the poor, and probably apply a means test.’

The Chancellor has warned of more “tough decisions” to be made in the October Budget, while the Prime Minister has said things will “get worse” before they get better – suggesting policies that might once have been considered politically “unthinkable” are now at least on the table.

In terms of what this might mean in practice, this government – ​​or a future government – ​​could simply decide that those with a good pension at work would receive a reduced rate of state pension. They could also decide that people with relatively large amounts of wealth (such as investments, second homes, etc.) would receive a reduced rate of payment.

There is a precedent for this in the Australian pension system, which has been highly praised by UK pension ministers, where the “age pension” is subject to both an earnings test and a wealth test.

In short, in Australia, you are allowed a certain amount of private income on top of your age pension, but if you have more than the limit, you lose 50 cents of age pension for every dollar over the limit.

You can have a certain amount of savings, known as your “asset free area”, but above this your pension is deducted at $3 per fortnight for every $1,000 of assets.

As a result of this combined income and assets test, it is estimated that only around two in five Australians get the full amount, around a quarter get a reduced amount and the remaining retirees get nothing or do not claim it.

Interestingly, this research estimates that the proportion of Australians receiving a full superannuation will decline dramatically over the next decade or so.

It would be fair to say that for the UK government to introduce something like this would be a “nuclear option” and would make the dispute over Winter Fuel Payments look like a walk in the park.

Many people who are already retired would feel very aggrieved if they had planned carefully, perhaps sacrificing income while working to save for a better retirement, only to find that the “rules of the game” changed when it was too late to do anything about it.

As a result of this, I think it is highly unlikely that any measures in the direction of means testing would apply to those who are already retired.

However, a similar argument would apply to those people, like you, who are approaching retirement and have also made plans that would be very difficult to change. Therefore, some form of transitional protection might be necessary here too.

As to your specific question, if you knew you *were* going to be means tested, then it would be very tempting to spend down your savings before you retire to make sure you qualified for the full amount.

But the government is likely aware of this risk and already has ways to penalize anyone who has “deprived” themselves of capital simply to obtain more profits (or pensions, in this case).

But crucially, if the government admits that it has to exempt those who are retired or close to retirement, that means they will not receive any money from politics for many years. However, they would take all the political problems from day one.

Politicians generally prefer policies that generate a lot of money up front and a minimum of noise, while this is exactly the opposite: no money for years and huge opposition.

Having seen the hostility generated by the scrapping of Winter Fuel Payments, it seems to me exceptionally unlikely that the Chancellor would now double down on his efforts by attacking the state pension itself.

Of course, this does not mean that retirees will necessarily escape some of the harsher medicines we have been promised.

Wealthier pensioners might benefit from a stricter regime on issues such as capital gains tax and/or inheritance tax, but in my view an assault on state pensions would be seen as a step too far.