An end to the means?

    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
    regime.

    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
    benefits.

    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
    efforts.

    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
    provision.

    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
    be made.
    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.

    Abstract

    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
    long-term perspective.

    References

    1. Age Concern England, The Impact of Pension Credit on Those
      Receiving It, 2004

    Contact the Author

    enquiries@housingoptions.org.uk

     

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