This piece first appeared in The Daily Telegraph on 5 April 2003
The text here may not be identical to the published text

Pens at the ready as form-filling unties £2bn credit

Pension credit begins in October 2003

Half the pensioners in Britain will be entitled to a new means-tested benefit from October. Pension Credit will put an extra £2 billion into the hands of people over the age of 65 – or at least those who claim it. The Government minister in charge of Pension Credit, Andrew Smith, recently admitted that he expected one in three of those entitled to it would not claim. "We’re working on a presumption of 67 per cent take-up for budgeting reasons, but obviously I want take up to be as high as possible", he told Saga Magazine.

Who can get it?

Anyone living in the UK and aged 65 or more with an income up to £138.83 a week (single) or £203.55 a week (couple) will get some pension credit. People with disabilities will be entitled with higher incomes. It does not affect the state retirement pension which will continue to be paid without a means-test. Pension Credit will not be paid to people living outside the United Kingdom.

The credit is in two parts. The first, called 'guarantee credit', replaces the existing minimum income guarantee and will be much the same as that benefit. It will 'guarantee' that single people aged 60 or more will have a weekly income of at least £102.10; for a couple the figure is £155.80. Anyone who has an income which falls short of those levels will get guarantee credit to bring their income up to them.

The second part is called 'savings credit' and will give extra money on top of the guarantee credit to single people over 65 whose income is between £77.45 a week - the level of the basic state pension from April - and £138.83. People who retire before they are 65, including many women who get the state pension from 60, will not get the savings credit until they reach 65. In the case of a couple, savings credit will top up the guarantee credit if between them their income is more than the 'couple's pension', ie the man gets £77.45 and his wife gets the married woman's pension of £46.35 – a total of £123.80 a week. Couples can get pension credit if their income is below £203.55 and one of them is aged 65 or more. The maximum savings credit is £14.79 a week or £19.20 for a couple. The minimum is 10p.

Income

In order to work out Pension Credit you need to know your income. Income includes state pension and any extras such as SERPS or graduated pension, and the full amount of a personal or company pension. There is a slight concession on earnings - the first £5 a week is ignored (£10 between them for a couple). If you rent out a room the profit counts as income, even if you do it under the tax-free rent-a-room scheme, and will reduce pension credit by 40p in the pound.

Savings

If you have savings, the actual income from it is ignored. Instead the capital is converted into a 'notional' income. The rules are more generous than those which apply to minimum income guarantee. There is no maximum amount of savings which are allowed – the present £12,000 upper limit which applies to Minimum Income Guarantee will not apply to pension credit and will disappear from October. The first £6000 of savings does affect pension credit. Once savings exceed £6000 a 'notional' income of £1 a week is assumed and for each £500 more a further pound is added. That rule is more generous than the current one that applies to minimum income guarantee. So from October many people who cannot get MIG because their savings are too high will be able to claim pension credit. Someone with no other income on top of the basic state pension will be able to claim some pension credit with savings as high as £36,000, or £45,000 for a couple.

Money in an ISA although free of tax is not free of this means-test. Someone who has the maximum £15,000 in a mini-cash ISA (from April) will be given a 'notional' income of £18 a week even though their ISA will at best be producing around £11.50 a week. If they are entitled to pension credit, it will be reduced by £7.20 a week, an effective tax on the money the ISA actually earns of around 63 per cent.

The calculation

For those aged 60 to 64 pension credit will bring their total weekly income up to £102.10 if they are single and £155.80 if they are married and both are under 65. For those over 65 the calculation is more complex. Pension credit will bring their income up to the total of £102.10 PLUS 60p for every pound of income over £77.45. For a couple, it will bring their income up to the total of £155.80 PLUS 60p for every pound of income over £123.80. If actual income is higher than the total then no PC is paid. So it ‘runs out’ as income exceeds £138.83 (single) or £203.55 (married).

Claims

More information from the Pension Service website or call 0800 99 1234.

Example

Mary is 66 and lives alone. She has a small works pension and some SERPS and her weekly income is £95.45. That is £18 a week more than the basic state pension of £77.45. So she will get Pension Credit to bring her income up to £102.10 PLUS 60% of £18. That works out at £102.10 + £10.80 = £112.90. So her pension credit will bring her income up to that amount. As she already has an income of £95.45 she gets the difference of £17.45 paid as pension credit to make her income up to £112.90. Under the current rules from April she would only get £6.65 from MIG. So she will be £10.80 a week better off from October. If she was aged 60 to 64 she would still only get an extra £6.65 a week from Pension Credit until she reached 65.

TABLE
PENSION CREDIT FROM OCTOBER 6, 2003
Weekly income

Aged 65 or more

Age 60-64

Guarantee and savings credit Total income Guarantee credit Total income
SINGLE

£90.00

£19.63

£109.63

£12.10

£102.10

£100.00

£15.63

£115.63

£2.10

£102.10

£110.00

£11.63

£121.63

£0.00

£110.00

£120.00

£7.63

£127.63

£0.00

£120.00

£130.00

£3.63

£133.63

£0.00

£130.00

£138.83

£0.10

£138.93

£0.00

£138.83

 

COUPLE

£140.00

£25.52

£165.52

£15.80

£155.80

£155.00

£19.52

£174.52

£0.80

£155.80

£170.00

£13.52

£183.52

£0.00

£170.00

£180.00

£9.52

£189.52

£0.00

£180.00

£190.00

£5.52

£195.52

£0.00

£190.00

£203.55

£0.10

£203.65

£0.00

£203.55

5 April 2003


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