Andrew Young is a consultant in the field of housing and
learning difficulties and has a special interest in benefits. He is
an adviser for Housing Options, a national advice service for
people with learning difficulties and their carers. He also works
with Hertfordshire Council’s money advice unit.
Pension credit, the current system of providing a means-tested
basic income to people older than 60, had its first birthday in
October 2004. So far, the government is pleased with the progress
of the scheme and its success in tackling poverty. Official
estimates suggest that more than three million people are receiving
pension credit, with about two million pensioner households
receiving more help than before. However, the scheme does have its
critics and, as a recent Pensions Commission report reflects, there
are questions about its long-term value as people live longer and
investments fall short.
Although there are still estimated to be 1.7 million people
entitled but who have not claimed, it is fair to say that the
pension credit has been a major boost to many older people’s
finances, with an average weekly household payment of £41.71.
Increased levels of the basic “guarantee credit” and the
introduction of the “savings credit” system have brought more
people into the scope of means-tested benefits.
There are several ways in which pension credit is an improvement
over its precursors. The treatment of capital and savings has
become more generous; admittedly not difficult when compared with
the draconian rules before the introduction of pension credit.
There is now no set upper limit of capital which automatically
disentitles applicants, and the income assumed from savings and
capital is half what it was before October 2003. The savings credit
element of the new system offers an enhanced level of payment to
people who have income or savings above the minimum of the basic
state pension and, or, more than £6,000 capital.
The application process is less intimidating, as it is primarily
done by telephone which avoids lengthy and unpleasant visits to the
Department of Work and Pensions’ public offices. The review system
is less intrusive and less administratively top heavy with the
introduction of an “assessed income period”. This has the effect of
fixing pension credit entitlement for a set period, generally five
years, but still allowing for yearly increases.
Interesting results can flow from this rule. One of my clients
inherited a large legacy, but before this she had been awarded the
guarantee element of pension credit for a fixed period of seven
years and so this new capital did not affect her pension. Even
though she had well in excess of £16,000, she was still
entitled to full housing benefit by virtue of the pension payment.
Because she received housing benefit, she was in turn entitled to
full help towards her Supporting People charges, in her case almost
£500 a week. In this case, the new rules about pension credit
have helped this individual to the tune of nearly £800 a week,
which would have rapidly depleted her capital under the previous
It is easy to have the benefit backdated for a full 12 months,
and applicants are asked whether they want this to happen. This
backdating can be reflected in the creation of backdated
entitlement to housing benefit and council tax.
There are difficulties with pension credit, however. Simple in
concept, in that it guarantees a minimum income, it is complicated
by the introduction of savings credit, which is difficult to
calculate and often impossible to explain to clients. Savings
credit can be paid independently of the basic guarantee credit but
when this happens it can be partly deducted from other
Another sore point is the treatment of carers. A typical example
might be a married pensioner caring full-time for her husband. Let
us assume he receives attendance allowance, in which case she would
in theory be entitled to a carer’s allowance of £44.35 a week.
But if she receives retirement pension from her husband’s national
insurance contributions, she will be paid £47.65 a week, and
will be caught by the “overlapping benefits” rule. This
long-standing rule says that, although people may be entitled to
more than one benefit, in the case of “income-replacement”
benefits, they will only be paid one of them. In this case, our
pensioner carer will not be paid the carer’s allowance because of
her retirement pension. Although some clients grasp the logic of
this, no one thinks it is fair. Pension credit has relaxed the
rules in carers’ favour by introducing a “carer’s premium”, but
this still represents a miserly recognition of the carer’s
Although pension credit can offer enhanced payments in
recognition of long-term illness or disability, local authorities’
charging policies can look to some of this money when deciding
whether people should pay towards their community care
Public reaction has been mixed. A survey by Age Concern England1
showed that just over half of pension credit recipients said it had
made a noticeable difference to their lives, and more than a
quarter said they now worried less about their household bills. On
the other hand, nearly three-quarters of the survey felt that the
means-test put people off applying for the money.
The means test at the heart of pension credit is as deeply
unpopular as it has been with the schemes that have preceded it.
Although the harshness of the rules have been relaxed over time,
and the new savings credit makes a small attempt to reward rather
than penalise thrift, there is a still a perception that the test
is unfair and merely papers over the cracks of a basic pension that
is among the least generous in Europe.
The pension credit’s anniversary coincided with Adair Turner’s
interim report for the Pension Commission, which spells out the
need to rethink the whole structure of pensions. If the next
generation of pensioners is not to be worse off compared with
average earnings than those now, substantial changes will have to
Too little money is going into savings and pension schemes, people
are retiring too early and living longer. Coupled with the
reduction in investment returns and the rapid closure of final
salary pension schemes, the future painted by the Pension
Commission is uncertain and bleak.
It may be that if private and state contributory pensions fail
to provide enough, we may face many more years of variations on a
means-tested theme. There is already talk of a major overhaul of
welfare benefits. An extension of the retirement age is one
proposal that keeps surfacing; in many quarters the age of 70 is
being suggested. If this happens, I will thank my lucky stars for
my warm, sedentary existence as a welfare rights adviser. I spent
nine months with a road-laying gang on the motorways years ago, and
I wouldn’t fancy doing that when I’m 70.
Pension credit has now been in operation for more than a year
and it has helped many people over 60. However, there are still
aspects of the system that are unpopular. The recent interim report
by the Pensions Commission puts the success of pension credit in a
- Age Concern England, The Impact of Pension Credit on Those
Receiving It, 2004
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