News

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.