PENSION
CREDIT
Fact sheet drawn up for On Your Behalf by Professor Eileen Evason.
August 2009
Introduction
Pension credit was introduced
by government in October 2003. It replaced the means-tested Minimum
Income Guarantee (MIG) which was previously known as income support
for pensioners. This constant changing of labels is confusing
but the important point is that pensioners who were already getting
MIG/income support did not need to apply for Pension Credit.
They were simply transferred over to the new system. Those, however,
who were not in the system, and who have not claimed Pension
Credit since its introduction, should check their entitlement
to this benefit with their local Citizen’s Advice
Bureau or Independent Advice Centre. This is because Pension
credit is a broader benefit than the provision it replaced and,
indeed, it is estimated that, as time goes on, the majority of
pensioners will be entitled to some help. Additionally, this
is a very complicated benefit and it is a good idea to get help
with the calculations involved.
Pension credit - A
game of two halves
FIRST HALF
The
Guarantee Credit
Stage 1
One reason why people find
pension credit a bit confusing is that it is, in fact, not one
benefit but two and pensioners may be entitled either or both
benefits.
The first part of pension
credit is what is known as the guarantee credit. This is payable
to persons aged 60 or over and what this does is bridge the gap,
if there is one, between what government thinks people need to
live on and their actual income. To see if you are entitled to
the guarantee credit you start by working out what is known as
the Appropriate Minimum Guarantee- that is the amount considered
to be necessary for someone in your circumstances. The Appropriate
Minimum Guarantee consists of the Standard Minimum Guarantee
plus any additions for which you qualify. The Standard Minimum
Guarantee is £130.00
a week for a single person and £198.45 married/cohabiting couple.
Additions...
Where someone
is entitled to the Carer’s Allowance you would add £29.50
to the Standard Minimum Guarantee. Where someone, for example,
lives alone and is in receipt of the Attendance allowance (or Disability
Living Allowance care- middle or higher rate) and has no one who
is claiming the Carer’s Allowance for helping
them, you should add £52.85 to the Standard Minimum Guarantee.
Extra may also be added in where people have mortgage interest
payments.
~ Example ~
Mrs Smith is a
widow aged 78. She lives alone and is getting the Attendance
Allowance. She pays rent for her pensioner bungalow and this
is covered by her Housing Benefit. A neighbour used to help her
and claimed the Carer’s Allowance for doing so.
This arrangement
ceased when the neighbour moved to another area.
Mrs Smith’s
Appropriate Minimum Guarantee consists of The Standard Minimum
Guarantee of £130.00, plus the additional amount of £52.85,
giving a total Appropriate Minimum Guarantee of £182.85.
Stage 2
The second stage in calculating
entitlement is to work out your income. Your state pension and
any occupational (works) or private pension you have will be
counted in full, as will most other benefits, apart from Attendance
Allowance and Disability Living Allowance.
The treatment of earnings
varies according to circumstances. In the case of a single person,
for example, the first £5 of earnings would, typically, be disregarded.
Where people have capital - savings, land, property they do not
occupy- then the first £6,000 (£10,000 for residents of care
homes) is ignored completely but after this people are assumed
to have a weekly income of £1 for each block (or part block)
of £500.
Note: For married couples,
income and capital are added together and treated as one.
Stage 3
The third stage in the calculation is to deduct
income from the Appropriate Minimum Guarantee. So if we return
to Mrs Smith.
Mrs Smith has a state pension of £80. She also
has an occupational pension of £10 a week and a personal pension
of £15 giving her £105 weekly. She has no other income apart
from her Attendance Allowance which is discounted but she does
have savings of £7,300. She will be assumed to be receiving an
income of £3 a week from these, bringing the total income figure
to £108.
The amount of guarantee credit Mrs Smith is entitled
to is the Appropriate Minimum Guarantee of £182.85 minus her
income of £108, giving a total of £74.85.
*********************************
SECOND
HALF
The
Savings Credit
The savings credit is the other half of pension credit and is payable to single persons aged 65 or over or to married couples where at least one partner is aged 65 or over. The idea here is to reward people for having secured –by way of, for example, an occupational pension, SERPS or earnings- income which exceeds the full rate of the basic state pension.
This is a rather more complicated
calculation than that for the Guarantee Credit.
1. The first step is to calculate your total income. This is done in the same way as for the Guarantee Credit so you can use the figure worked out in stage two above.
2. The next step is to calculate your Appropriate Minimum Guarantee. Again this is the same as for the guarantee credit so you can use the figure worked out in stage one earlier.
3. Rather confusingly, the next step is to calculate your qualifying income. This is your total income minus –if you receive them- the following benefits: working tax credit, incapacity benefit, contribution- based jobseeker’s allowance, severe disablement allowance, maternity allowance and maintenance allowance. Trust me, there is a logic to this.
4. Once you have got your qualifying income figure you should compare this with what is known as the savings credit threshold. This is £96.00 for a single pensioner and £153.40 for a pensioner couple. If your qualifying income is less than the threshold applicable in your case then you are not entitled to the savings credit. Remember the aim of this part of pension credit is to reward those who have secured more than the basic pension for their retirement.
5. If your qualifying income is more than your savings credit threshold then you work out the amount of the excess and then calculate 60% of this. BUT the maximum amount of savings credit payable is £20.40 for a single person and £27.03 for a couple. SO, if your 60% figure exceeds these amounts use these figures instead. What is happening here is that government is trying to limit savings credit to those on lower incomes just above the thresholds.
6. If your total income, as calculated in step one, is less than the figure you worked out for step 2 - your Appropriate Minimum Guarantee- then the figure you worked out for step five is what you will be entitled to by way of savings credit. If your total income is more than your Appropriate Minimum Guarantee then go to the next step.
7. Calculate the amount by which your total income -step one -exceeds your Appropriate Minimum Guarantee-step 2. Calculate 40% of the excess and deduct it from the figure calculated at step five. What remains is your savings credit entitlement. Again this is to ensure the bulk of help goes to those on lower incomes not far above the threshold.
~ Example ~
Mr Jones is a widower aged 68 and has a basic state pension of £90 a week and a pension from work of £42. There are no special circumstances.
Step 1 - his total income is £132 a week.
Step 2 - his Appropriate Minimum Guarantee is £130.00.
Step 3 - Mr Jones has none of the income sources which are taken out when calculating qualifying income so the step 3 figure is £132.
Step 4 - Mr Jones's qualifying income exceeds the savings credit threshold. The excess is £132 minus £96.00 = £36.00.
Step 5 - 60 % of the excess-£36.00- is £21.60. This is more than the maximum allowed - £20.40 - so we use £20.40 figure instead.
Step 6 - Mr Jone'’s total income is more than his Appropriate Minimum Guarantee. The excess figure is £132 minus £130.00 = £2.00. 40% of the excess figure of £2.00 is £0.80p.
Step 7 - When £0.80p is deducted from the step 5 figure of £20.40 the amount remaining is £19.60 and this is Mr Jones's savings credit.
Further help
As we indicated at the start, this is a very complicated benefit. Listeners who think they may be entitled should contact their local CAB or Independent Advice Centre for help with this. If you do have any problems with this, or other benefits, contact us at oyb.bbc.co.uk
Eileen Evason
Benefits Advisor, On Your Behalf
"ON YOUR BEHALF" SATURDAY
MORNINGS 09.30 – 10.00
Repeated WEDNESDAY Evenings 19.00 – 19.30
Tel: (028) 9033 8314 Email: oyb@bbc.co.uk Website: www.bbc.co.uk/oyb
British Broadcasting Corporation
Broadcasting House Ormeau Avenue Belfast BT2 8HQ
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