Give Brown some credit

Gary Vaux does the sums on the new pension
credit due for 2003 and finds five million set to gain.

The Sunday Times greeted the
announcement of pension credits with “Chancellor snubs elderly
savers”. This is true, if we only consider pensioners with savings
of more than about £37,000 or with work pensions of more than
£60 per week.

But altogether around five million people,
almost half of all pensioners, will gain something when this
radical new benefit is introduced in 2003. The average gain will be
around £400 a year.

By 2003, the government assumes that the basic
state pension for a single pensioner will be £77 per week and
the minimum income guarantees (income support levels for
pensioners) will be £100 per week for a single pensioner and
£154 per week for a couple.

On top of this will sit the new pension
credit, designed to reward pensioners who have some savings or work
pensions. The downside is an increase in complexity and, of course,
means-testing.

For local authorities, the major issues will
be how to promote take-up of the new benefit and how it will affect
charging. The key elements are as follows:

– As with income support, pensioner’s savings
of less than £6,000 will be ignored .

– The assumed income from savings above
£6,000 will be £1 per week for every £500 instead of
£1 per week for every £250.

– Pensioners with a second pension or savings
and incomes of less than about £135 per week for a single
pensioner, £200 per week for a pensioner couple, will be
eligible for a pension credit. The credit will be set at 60 per
cent of the income from the second pension or savings. The maximum
savings credit will be £13.80 per week for single pensioners
and £18.60 for couples.

Here are some examples:

In 2003, Edna Cooper will have a retirement
pension of £77 per week and a work pension of £18 per
week. Under the current rules, she could receive £5 a week
income support to bring her to the £100 minimum income
guarantee figure. When the pension credit is introduced she would
still get that £5 but she will also receive a pension credit
of another £10.80 per week (60 per cent of her work
pension).

Bill Andrews has a pension of £77 per
week and £9,000 in savings. Under the current rules, his
income support of £23 per week would be cut to £11
because of the assumed income from his savings. From 2003, the
assumed income will be only £6 per week, increasing his income
support to £17. If he applies for pension credit, he will get
another £3.60 per week (60 per cent of £6). He will be
£9.60 per week better off, with an actual income of
£97.60.

Ted and Dora Deane have retirement pensions
worth in total £123 per week. They have savings of
£11,000 and £30 in private pensions. Under the present
rules, they wouldn’t get income support. Under pension credit they
would get an extra £15 per week.

Pension credits will be calculated alongside
retirement pensions when a person reaches 65 and then will only be
reassessed every five years, unless there is a major change in
circumstances (such as bereavement or a fall in income).

Any charging policy for home care that you are
devising must take the new credit into account. Unfortunately, the
Department of Health have yet to suggest how.

Gary Vaux is head of money advice,
Hertfordshire Council. He is unable to answer queries in person. If
you have a question to be answered in Welfare Rights, please write
to him c/o Community Care.