More money for those who need it

Several readers have written to me concerned that their retirement pension is about to be means-tested. There is no need to worry; it is not. The Government is committed to the state pension being paid in full to everyone who has paid sufficient National Insurance contributions. However, the fears are understandable. From October there will be a new benefit called Pension Credit which is means-tested and half the pensioners in the UK will be able to claim it.

Pension Credit is a development of the existing minimum income guarantee (MIG). Everyone aged 60 or more can already claim extra money to bring their weekly income up to £102.10 – or £155.80 between them for a couple (these rates apply from April 7). The common complaint about MIG is that it penalises people who have saved for their retirement. Someone who has put nothing aside will get their income topped up to £102.10. And someone who has saved up, in a pension or savings plan, and gets, say, £20 a week on top of the retirement pension will also get their income topped up to the same amount - £102.10. So what is the point of saving? Pension Credit will deal with this problem by giving extra money to people who have saved up or who work after 65. It will benefit everyone over 65 with a weekly income of up to £138.83 – and to couples with an income up to £203.55. Those amounts will be higher for carers and people with a severe disability.

The new benefit starts on October 6 and will be in two parts. The first – called ‘guarantee credit’ – is the same as the MIG and will make your income up to £102.10 (single) or £155.80 (couple). You have to be aged 60 or more to get the guarantee credit. For a married couple (or a man and woman living as a couple) only one of them has to be over 60.

The second part is called the ‘savings credit’ and is paid to anyone aged 65 or more who has extra income above the level of the full basic state pension. The extra income can be from

· a company pension

· a personal pension

· Extra state pension including SERPS or State Second Pension,

· rent if you let out a room

· earnings (after you have deducted £5 a week – or £10 for a couple.)

For single people, the savings credit will make their weekly income up to the total of £102.10 plus 60p for every pound of extra income over £77.45.

Pension Credit will be paid to a single person with an income up to £138.80 a week. For example, if you have an income of £138 you will still get Pension Credit of 43p a week.

The savings credit is paid to a couple with an income above £123.80 a week – the amount of the full basic state pension for a man and his wife paid on his National Insurance contributions. The Pension Credit will make the couple’s income up to the total of £155.80 plus 60p for every pound of income over £123.80.

A couple can get some Pension Credit if their income is as high as £203.55. For example if their income is £203 they will get Pension Credit of 32p a week.

From October there will also be more generous rules for people who have saved up money. Officially it is called ‘capital’ but it includes cash and investments such as shares that can be converted into cash. Capital up to £6000 will be ignored completely. Capital of more than £6000 will be converted into a notional ‘income’ regardless of what the money actually earns. Once capital exceeds £6000 the DWP assumes the person has £1 a week of income and a further pound for each extra £500 capital. This ‘notional’ income is then added to any other income before Pension Credit is worked out. The current upper limit of £12,000 on capital will be scrapped. So some people with considerable savings who could not get MIG will be able to get pension credit. For example, a single pensioner with just the basic state pension and £15,000 in the bank will be counted as if she had an extra £18 a week income but will still get Pension Credit of £17.45 a week (over 65) or £6.65 (aged 60-64). Before October nothing would be paid. A couple living on the basic state pension of £123.80 who have £45,000 in the bank could still get Pension Credit of 80p a week.

The income which is used to work out Pension Credit is your net income after tax is deducted. You may get pension credit from the DWP and still have to pay income tax to the Inland Revenue. For example, a 70 year-old woman living alone with a weekly gross income of £137.52 will pay £1.04 a week in tax and get exactly the same £1.04 a week back in Pension Credit from the DWP. Pension Credit itself is tax-free.

From October 6 there will be more help with rent and rates for people aged 65 or more. The changes will mean that single people will normally get all their rent and council tax paid if their income is up to £116.90 a week. For a couple the figure will be £175 a week. Everyone over 65 who currently gets their rent or council tax reduced will get a bigger reduction from October . In most cases a single person will get an extra £150 a year off their council tax and, if they pay rent, an extra £9.50 a week off that as well. For a couple the figures are about £200 more off council tax and an extra £12.50 off their weekly rent. The new capital rules also apply from October to the calculation of money off rent and rates.

The big problem with the Pension Credit is that it has to be claimed and experience with other means-tested benefits is that many people simply do not claim them. About 750,000 people over 60 do not get the minimum income guarantee and well over a million fail to claim the help they could get with their council tax or rent. The new Pension Credit should be paid to more than five million people. But Andrew Smith, the Secretary of State for Work and Pensions who is in charge of the new benefit, told Saga Magazine this month that he anticipated one in three would not claim, around 1.8 million people. Even by 2006, Government figures anticipate that at least a million will still not have claimed. Make sure you are not one of them! You can find out if you are entitled to MIG now by calling 0800 028 1111. A new phone line has been opened by the Department for Work and Pensions for enquiries and claims for pension credit – call 0800 99 1234. You can find out more from your local Benefits Agency or Pension Service office or from the website www.thepensionservice.gov.uk

Once your Pension Credit has been assessed it will continue for at least five years without you having to inform the DWP about any changes in your income or savings. However, if your income or savings fall significantly you can apply for it to be re-assessed before that.

The Pension Credit will be paid direct into a bank account. Over the next two years your retirement pension will also be paid in this way and the order books you cash at the Post Office will be phased out. Next month I shall explain how these changes will work and how you can still get your money in cash at the Post Office if you wish.

March 2003

e-mail Paul Lewis on paul@paullewis.co.uk