3. Credit and benefits

The coalition programme

Benefits play a big role in pensioner income. The coalition government programme said it would “protect” key benefits for older people such as the winter fuel payment, free TV licenses, free bus travel and free eye tests and prescriptions, but nothing was said about the main benefit, Pension Credit.

Not in the programme was a Lib Dem plan to extend winter fuel payments to all severely disabled people, paid for by delaying age-related winter fuel payments until people reach 65 (while continuing to pay all current recipients of Pension Credit).

Pension Credit

The key benefit supplementing income from state and occupational pensions is Pension Credit, although other benefits like Housing Benefit and Council Tax Benefit also play an important role. It was introduced in 2003 through the State Pension Credit Act 2002 and is made up of two elements: a Guarantee Credit designed to provide a minimum level of income, and a Savings Credit to provide an additional amount for those with low or modest incomes. However, these benefits are means-tested and this can discourage people from saving (including joining a pension scheme offered by their employer).

• Guarantee Credit tops-up weekly income to £132.60 (2010-11) for a single person, £202.40 (2010-11) for a claimant who has a partner (husband, wife, civil partner “or the person you live with as if they were your husband, wife or civil partner”). These amounts can be higher for someone who is disabled, has caring responsibilities, or certain housing costs such as mortgage interest payments. Eligibility for Guarantee Credit was linked to women’s state pension age (under the Pensions Act 2007) currently60 but rising by stages to 65 in future. If the claimant has a partner of either sex and both are over 60, either can apply but only one can receive it (at the rate for couples).

• Savings Credit can be worth up to £20.52 a week for a single person or £27.09 for a couple (2010-11 rates) and may be payable where claimants have income levels ranging from Guarantee Credit level (the Savings Credit threshold) to £184.00 a week for a single person, £270.00 a week for someone with a partner (2010-11 rates). As with Guarantee Credit these amounts may be higher if the claimant is disabled, has caring responsibilities or certain housing costs such as mortgage interest payments. Savings Credit is for over-65s and is up-rated annually by Parliament

For more information on calculating and claiming Pension Credit see the LRD guide State benefits and tax credits 2010.

Under-claiming

With less income from other sources, women are more likely to qualify for means-tested benefits. Single women pensioners are the largest group receiving the basic Guarantee Credit element of Pensions Credit (1.3 million in August 2008). However, there is a general problem of under-claiming. The Department of Work and Pensions has been piloting ways of automatically paying money to people.

MPs on the Work and Pensions Select Committee reported in 2009 that two million pensioners were missing out on means-tested benefits mainly because they were complicated and government agencies were failing to advertise them. Age UK has claimed that up to £5.4 billion of means-tested benefits are going unclaimed, although a decline in pensioner poverty between 1997 and 2008 is partly attributed to improvements in the take-up of Pension Credit (Equality and Human Rights Commission, EHRC).

Factors identified by public services union UNISON as contributing to under-claiming include an over-complex application process and the fact that many of today’s pensioners are sensitive and proud people who don’t like declaring details of their savings. It argues that the value of the Guarantee Credit should at least match the official poverty line figure; and that all private pension savings should be disregarded.

UNISON’s proposals highlight an underlying problem with the interaction between means-tested and non-means tested income including pensions like the planned auto-enrolment and NEST scheme. The Institute for Fiscal Studies (IFS) has argued that the biggest winners from any increase in the value of the Basic State Pension (in proportion to their income) will be those eligible for mean-tested benefits but who for whatever reason do not take them.

However, a 2009 DWP report, Saving for Retirement: Implications of Pension Reforms on Financial Incentives to Save for Retirement, suggested that “the vast majority” of people should benefit from saving after the 2012 reforms, reducing any incentive for them to opt out (cited by Age UK).

Other benefits

The new government has promised to protect certain welfare benefits that affect pensioners (winter fuel payment, free TV licenses, free bus travel and free eye tests and prescriptions) but there are other key benefits like Housing Benefit and Council Tax Benefit (or — for owner-occupiers — help towards housing costs) that contribute to pensioner income.

Age UK says it may be worth making a claim for Guarantee Credit in order to get help towards these other expenses. Attendance Allowance, Disability Living Allowance, help towards health costs, and help from the Social Fund could also be available. DWP projections suggest that, under the Pensions Act2007 reform, entitlement to Council Tax Benefit should drop from 50% of pension households to 30% by 2050, Pension Credit from 45% to 30%, Housing Benefit from 20% to 10%, and for any of these from 60% to 40%.