PENSION CREDIT FACTSHEET
As compiled by Professor Eileen Evason for BBC Radio Ulster’s On Your Behalf
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.
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
The Guarantee Credit
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 over state pension age (the age at which women qualify for the state pension) 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 £148.35 a week for a single person and £226.50 for a married/cohabiting couple.
Where someone is entitled to the Carer’s Allowance there is an addition of £34.20 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, there is an addition of £61.10 to the Standard Minimum Guarantee.
Extra may also be added in where people have mortgage interest payments.
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 £148.35 plus the additional amount of £61.10 giving a total Appropriate Minimum Guarantee of £209.45.
The Guarantee Credit
The second stage in calculating entitlement is to work out income.
The 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 £10,000 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.
The Guarantee Credit
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 £120. She also has an occupational pension of £30 a week giving her £150 weekly.
She has no other income apart from her Attendance Allowance which is discounted but she does have savings of £11,300.
She will be assumed to be receiving an income of £3 a week from these, bringing the total income figure to £153.
The amount of guarantee credit Mrs Smith is entitled to is:
the Appropriate Minimum Guarantee of £209.45 minus her income of £153 = £56.45.
Pension Credit - A game of two halves
The Savings Credit
The savings credit is the other half of pension credit and is payable to single persons aged 65 or over and 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 or SERPS - 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. Calculate total income as above.
2. Calculate Appropriate Minimum Guarantee as above.
3. Compare figure from stage 1 with the savings credit threshold: £120.35 for a single pensioner and £192.00 for a pensioner couple.
If your income is less than the threshold 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.
4. If your 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 £16.80for a single person and £20.70 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.
5.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 4 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.
6. 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 4.
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.
Mr Jones is a widower aged 68 and has a basic state pension of £100 a week and a pension from work of £52. There are no special circumstances.
Step 1 - his total income is £152 a week.
Step 2 – his Appropriate Minimum Guarantee is £148.35.
Step 3 - Mr Jones’s qualifying income of £152 exceeds the savings credit threshold of £120.35. He therefore has some entitlement to savings credit.
Step 4 - The excess figure is £152-£120.35=£31.65. 60% of the excess figure is £18.99. This is more than the maximum allowed-£16.80- so we use £16.80 instead.
Step 5 - Mr Jones’s total income at step 1 is more than his Appropriate Minimum Guarantee at step 2.
The excess figure is £152 minus £148.35 = £3.65.
40% of the excess figure of £3.65 is £1.46.
Step 6 When £1.46 is deducted from the step 4 figure of £16.80 the amount remaining is £15.34 and this is Mr Jones’s savings credit.
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.
It is particularly important to check out entitlement when there is a change of circumstances.
For example, where there is an award of Attendance Allowance and there may be entitlement to the severe disability premium.