This piece first appeared in The Daily Telegraph on 18 December  1999
The text here may not be identical to the published text

Why Christmas cash for granny is of no benefit

Savings over £3000 cost income

Pensioners who get a Christmas present of cash from their families may find that it makes them poorer all year. Around two million people aged 60 or more get what the Government calls its 'Minimum Income Guarantee'. The amount is £75 a week for every single person over 60 - £116.60 for a couple. Older people get a few pounds more. But the income is only guaranteed to people whose savings are £3000 or less. Anyone with savings over that amount will find the 'guaranteed income' is reduced.

And with returns on savings at very low levels, the amount of the reduction is usually far more than anyone could earn in interest. One woman who has suffered from this policy is Marjorie Bennett, aged 77 who lives near Bristol. She had been receiving her minimum income guarantee for a year. But then she had a visit from the Benefits Agency and they asked her to show them her bank books.

"I got £77 a week. Then I had a letter saying they were sending someone round. They're doing that round here. Now I have some money in the Abbey National. And I explained to them that was for my funeral. I've no next of kin and solicitors donít work for nothing so I showed them that. Now, I've been robbed twice here of cash so when I get my pension I get my groceries and then allow myself £10 - or £15 if I have to get my hair done - and the rest I put in Lloyds bank. Now that doesnít earn any interest. I just put it there so it's safe and then when the bills come I can pay them without worrying. I also got the £100 fuel payment from the government and I put that in there too. So I've got a thousand or so in there now. Anyway they looked at all that and cut my money by £8 a week. So whatever you do, donít wish me a Happy Christmas!"

Miss Bennett is a victim of a ten year old limit on savings which affects anyone who claims a means-tested benefit like income support. Anyone whose savings are above £3000 can still claim the income support (which the Government likes now to call minimum income guarantee) but will find it is reduced. The reduction is £1 a week as savings exceed £3000 and then for every £250 extra, another £1 is lopped off. Once savings top £8000 income support stops altogether.

The definition of savings is very broad - and includes cash and the total of any bank or building society accounts. So the money Miss Bennett keeps in the bank for her funeral and the money in her current account to pay her bills all counts as savings. As the total is just short of £5000, she gets £8 a week lopped off her weekly money. That is almost as much as she allows herself to spend each week once the bills and groceries are paid.

The interest she earns is, of course, far less. The very best rate of interest available is 6 per cent and for that you need to have a computer and an internet connection and you do not get a cheque book to pay bills. Most banks and building societies pay no more than 4 pc on small amounts like those Miss Bennett owns - some a lot less. And of course on her current account no interest at all is paid. The £8 a week the Department of Social Security cuts off her weekly money is equivalent to earning 9pc on her modest savings. Such rates are just not possible now. And if she had the maximum savings the law allows - which is only £8000 - then she would be docked the equivalent of earning 13.5% on it.

Her MP Steve Webb, who is also the shadow social security secretary for the Liberal Democrats, says it may be the law but it is an appalling way to treat an elderly woman worried about her bills now and her funeral in the future.

"It is outrageous to take £8 of Miss Bennett's £77 a week income support when she has just £5000 in savings and almost half earns no interest at all. These limits are far too low especially when they relate to people's life savings. The Government promised to act on this issue a year ago. Twelve months later they are still dithering. Miss Bennett's experience shows that the so-called minimum income guarantee is anything but guaranteed."

The Department of Social Security confirmed the matter was under review.

"It doesnít really relate to interest or what you might get from the savings. It's a sliding scale that has been developed. This Government is not particularly happy with that and has said it wanted to look at better ways to reward savers and Ministers will bring forward proposals later in this Parliament."

That does not help Miss Bennett this winter. In one way, though, her fears were not realised. The £100 winter fuel payment, which has gone to every pensioner household this winter, does not affect her income support. It should be ignored both as income and capital. But anyone who has put it in the bank, as she did for safe-keeping, should be very careful that the Benefits Agency office knows where that £100 came from. If it pushes their savings over one of the £250 thresholds, and they do not tell the Benefits Agency it is a winter fuel payment, then they could be docked £1 a week, taking back more than half of the £100 payment over the next twelve months.

And readers who are thinking of giving granny a cheque to help her out at Christmas would be better off wrapping up some food or clothes or just paying a bill. If she banks it, the Department of Social Security may just decide to take its share by cutting her weekly income.

18 December 1999

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