Pension Credit

LEGISLATION

State Pension Credit Act (NI) 2002

The State Pension Credit Regulations (NI) 2003

The State Pension Credit (miscellaneous amendments) Regulations (NI) 2004

INTRODUCTION

Pension Credit (PC) is a means tested benefit for people aged 60 or over. It aims to ensure that people over 60 have a guaranteed weekly income.  It also rewards those who have made some additional provision for retirement above the basic state pension.

PC consists of two elements:

A person may be entitled to either or both of these elements.

A prisoner who has been sentenced or has been on remand for more than 52 weeks or a person who is a member of a religious order and fully maintained by that order cannot claim PC.

PC is not taxable.

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1. Who can a person claim for?

When claiming PC, a person can claim for her/himself and her/his partner if s/he has one. All income and capital of a person’s partner, whether married or in a civil partnership or not, is aggregated to the person’s income and capital for the purposes of an assessment.

There are no child increases payable with PC and a claim should be made instead for Child Tax Credit (CTC). Any income of a dependent child will not affect a person’s PC.

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2.  Guarantee Credit

2.1 Entitlement

A person may be entitled to a guarantee credit if s/he is:

2.1.1 Aged 60 or over

A person aged 60 or over can claim a guarantee credit. However, this will increase to 65 between 2010 and 2020 in line with the Part 1 of Schedule 2 of the Pensions (NI) Order 1995 which gradually increases the retirement age for women.

2.1.2 Habitually resident in the Common Travel Area

To qualify for a guarantee credit, a person must be habitually resident and have a right to reside in the Common Travel Area (UK, Channel Islands, Isle of Man or Republic of Ireland).

Some people are automatically treated as being habitually resident, including people who are workers within specific pieces of European legislation and who are also citizens of the European Economic Area or from accession countries, refugees and people with exceptional leave to remain in the UK within immigration law. 

A person’s entitlement will continue during temporary absences from Northern Ireland for up to:

2.2 Calculating guarantee credit

A person’s guarantee credit is calculated in three steps. To assess a person’s entitlement to guarantee credit:

Step 1: calculate the appropriate minimum guarantee; then

Step 2: calculate the total income; then

Step 3: compare appropriate minimum guarantee and income.

2.2.1 Step 1: appropriate minimum guarantee

A person’s appropriate minimum guarantee represents the minimum amount of income that the government believes a person should have to live on each week. It aims to ensure that the weekly income of all those entitled is brought up to a minimum level.  The exact figure depends upon a person’s marital status, whether s/he is part of a couple, any disabilities, caring responsibilities and eligible housing costs.

The figure consists of:

2.2.1.1 Standard minimum guarantee

The amount of the basic standard minimum guarantee is as follows.

Amount

2.2.1.2 Additional amounts

The additional amounts are as follows.

Amount

Where a person is single, s/he will qualify for the lower rate of the severe disability additional amount if:

Where a person has a partner, s/he will qualify for the lower rate of the severe disability addition if:

The higher couple rate of the severe disability addition is payable where:

Where the person claiming has someone aged eighteen or over residing with her/him, her/his presence will be ignored where the person residing:

(Note: Any member of her/his household is also ignored.)

Amount          £29.50

A person will qualify for this additional amount if s/he or her/his partner:

If a person has a partner who also receives a CA, then the additional carer’s amount is awarded twice.

When a person’s entitlement to CA ends, the carer’s addition will continue for eight weeks.

A person may be able to get an additional amount of appropriate minimum guarantee in respect of housing costs. This is treated in the same way as the additional amounts detailed above, and will be added on to the standard minimum guarantee when calculating entitlement.

A person may get help with housing costs if s/he and/or partner:

To receive an additional amount for home loan payments in a guarantee credit award, a person must have a qualifying loan. A qualifying loan is:

The amount represents the weekly interest on a qualifying loan, and is calculated in a particular way. The level of support for mortgage interest and repairs and improvements is restricted to total loans below an upper limit of £100,000.

The upper limit was increased to £200,000 for certain people claiming Income Support, Employment and Support Allowance (ESA) or Jobseeker’s Allowance (JSA) after 5 January 2009 or in a help with mortgage interest waiting period at that date.  Those claimants who become entitled to Pension Credit within twelve weeks of entitlement to Income Support, JSA or ESA and who were receiving help with mortgage interest at the upper limit of £200,000 can continue to have the upper limit applied.

Note: A loan taken out to make adaptations to a house for a disabled person will not count towards the £100,000 or £200,000 limit.

Where a person qualifies for housing costs, s/he will get help straightaway.

A person can get help with a loan for repairs or improvements to maintain her/his current home in a habitable condition. Payment of interest on a loan will be made on loans taken out for:

Housing costs will only be payable on a loan taken out to pay for any of the above repairs.  Housing costs will not reimburse a person for expenditure from her/his own resources for the above repairs. Where a loan also covers other repairs not included above, housing costs will only be paid for the proportion which relates to the items listed above.

Any housing costs payable for the above repairs and improvements will be calculated in the same way as for mortgages.

The amount of housing costs payable may be reduced where a person:

In all other circumstances, a weekly deduction of £7.40 will be made. A deduction of £7.40 will be made for a non-dependant in receipt of PC, regardless of weekly income.

Note: Where a person is aged 65 or over, any change in a non-dependant’s circumstances which reduces the award of housing costs will not take effect until 26 weeks after the change has occurred.

No deduction is made in respect of a non-dependant who is:

Regardless of the status of the non-dependant, no deduction is made if the person claiming or her/his partner is:

2.2.2 Step 2: income

Income is calculated on a weekly basis for guarantee credit. Income includes earnings, benefits and tax credits and other income such as maintenance and income from capital.

2.2.2.1 Earnings

A person can claim a guarantee credit and be working at the same time. There is no limit on the number of hours a person can work and continue to claim a guarantee credit.

However, the earnings do count as income. Net earnings (ie earnings after deductions of tax, national insurance and half of any contribution paid toward a personal or occupational pension) will be taken into account in full, less any amount which is to be disregarded.

Earnings include:

Earnings disregard

The following amounts are disregarded from earnings.

Any earnings derived from employment which ended before the day of entitlement to PC began are ignored.

Disregard £20 where a person or her/his partner:

The disregard will continue to apply so long as there is no break of more than eight weeks in entitlement to PC or in employment;

A person can only have a maximum of £20 disregarded from her/his earnings, even if s/he qualifies under different parts or has a partner who qualifies as well.

If a person does not qualify for a £20 disregard then the following disregards apply:

2.2.2.2 Benefits and tax credits

The benefits and tax credits ignored completely when calculating income are:

The following benefits count as income but have a £10 disregard:

The following benefits and tax credits count in full as income:

All other social security benefits count in full as income.

2.2.2.3 Other income

Payments received towards the maintenance of a person or her/his partner by a spouse/civil partner or former spouse/civil partner count in full as income, whether made by court order, agreement or voluntarily.

Child maintenance is ignored for guarantee credit.

Rent from properties other than a person’s home is not counted as income. However the property may be deemed as capital and therefore generate an assumed income (see capital, below).

Where a person has an agreement to let out part of the home in which s/he currently resides, up to £20 of the rent can be disregarded.

Where a person provides meals to a boarder or lodger, the first £20 of the weekly charge is ignored and half of the remaining balance will be taken into account as income.

This disregard does not apply where the boarder or lodger is a close relative or is not staying on a commercial basis.

An equity release scheme is such that a lender forwards sums of money to a person and these payments are secured on a home that the person owns.

Regular payments will be treated as retirement pension income and will normally count in full as income. However, where payment starts within an assessment income period, the income will be ignored until the claim is reassessed at the end of the assessed income period.

Irregular lump sum payments will be considered as capital.

There is no upper capital limit for guarantee credit. If a person and/or her/his partner have capital over £6,000 (or £10,000 if resident in a care home), they are deemed as having an assumed weekly income of £1 for every £500 (or part of £500) of capital over £6,000 (or £10,000). From October 2009, the threshold for tariff income will increase from £6,000 to £10,000.

A person will be treated as possessing capital s/he does not actually have if s/he has deprived her/himself of capital in order to obtain benefit, or obtain benefit at an increased rate. This is known as the notional capital rule.

For the notional capital rule to apply, the decision maker would have to show that the person deprived her/himself of the capital with the intention of obtaining benefit or obtaining benefit at a higher rate.

If the capital is disposed of by reducing or paying off a debt owed by the person claiming, or by reasonable expenditure on purchasing goods or services, then it will not be regarded as deprivation in order to obtain benefit.

2.2.2.4 Assessed income period

PC rules enable certain types of income known as ‘retirement provision’ to be treated as remaining the same for an assessed income period of up to five years (or seven years if a person transferred on to PC from Income Support on 6 October 2003 and the person or her/his partner was 65 on or before that date).

For a person claiming who is aged 75 or over the assessed income period will be indefinite and not limited to five years.

The assessed income period will not be applied if one member of the couple is under 60 or the payment of an element of retirement provision has temporarily stopped. 

Retirement provision is defined as income from:

A person does not have to notify any increase or subsequent receipt of retirement provision during the assessed income period. Where the terms of retirement provision allow for periodic increases in retirement provision and the dates and amounts of the increases have been notified to the Pension Credit office, benefit will be automatically adjusted in line with these terms. Where the terms allow for periodic increases but dates and amounts are unknown, adjustment of benefit will be in line with the social security uprating for additional pensions. No adjustment will be made where retirement provision does not allow for periodic increases.

The claim will be reassessed at the end of the assessed income period and any income adjustments (including that from retirement provision) will be applied in the following assessed income period. However, any decreases or cessation of retirement provision should be notified and, where necessary, entitlement will be increased accordingly.

All other changes in circumstances should be notified to the PC office as soon as possible. If a person fails to notify a change of circumstances, an overpayment could occur. Therefore it may be beneficial to report all changes in circumstances, including those that affect retirement provision, to ensure that no unnecessary overpayments are subsequently raised.

The current assessed income period will end if a person:

2.2.3 Step 3: deduct income from appropriate minimum guarantee

The amount of a person’s guarantee credit is the amount of her/his appropriate minimum guarantee less the total income.

If a person’s income is higher than the appropriate minimum guarantee, then s/he will not be entitled to any amount of guarantee credit. S/he may however be entitled to an amount of savings credit.

If a person’s income is lower than the appropriate minimum guarantee, then deduct the income from the appropriate minimum guarantee to get the amount of guarantee credit s/he is entitled to.

2.3 Example 1

Ms B is single, age 74, lives alone in private rented accommodation. Her only income is her retirement pension of £95.25 and Attendance Allowance.

Guarantee credit

Mrs B is entitled to a guarantee credit of £87.60.

2.4 Example 2

Jack aged 70 and Vera aged 66 live together and are owner occupiers.  They are both in receipt of Attendance Allowance.  Jack has a retirement pension of £95.25 and Vera receives £57.05.  From this they have to pay their mortgage of £126 per month to the building society for interest and £26 per month to an endowment company.

Guarantee credit

Jack and Vera are entitled to a guarantee credit of £180.93.

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3. Savings Credit

3.1 Entitlement

A person may be entitled to a savings credit if s/he is:

3.2 Calculating savings credit

There are six steps to calculating savings credit.

Step 1: calculate income;

Step 2: calculate appropriate minimum guarantee;

Step 3: calculate qualifying income;

Step 4: select relevant savings credit threshold;

Step 5: compare qualifying income with savings credit threshold;

Step 6: compare income with appropriate minimum guarantee.

3.2.1 Step 1: calculate income

Income for savings credit is calculated in the same way as income for the guarantee credit (see 2.2.2).

3.2.2 Step 2: calculate appropriate minimum guarantee

The appropriate minimum guarantee is calculated in the same way as the appropriate minimum for the guarantee credit (see 2.2.1).

3.2.3 Step 3: calculate qualifying income

A person’s qualifying income is calculated by taking her/his income less any amount s/he receives from:

3.2.4 Step 4: select relevant savings credit threshold

The current savings credit thresholds are:

3.2.5 Step 5: compare qualifying income with savings credit threshold

To qualify for a savings credit, a person must have qualifying income above the savings credit threshold.

Compare the qualifying income (step 3) with the savings credit threshold (step 4).

Where a person has qualifying income below the savings credit threshold then s/he will have no entitlement.

Where a person has qualifying income in excess of the savings credit threshold then calculate 60 per cent of the excess.

The maximum amount of savings credit a person can receive is:

If the figure calculated (ie 60 per cent of the excess) is above the relevant maximum then the figure is capped at the maximum amount of savings credit.

The figure calculated here, whether it is capped or not, represents the person’s maximum savings credit entitlement.

3.2.6 Step 6: compare income with appropriate minimum guarantee

Where a person’s income (step 1) is less than the appropriate minimum guarantee (step 2), s/he will receive a savings credit equal to the amount calculated at step 5.

Where a person’s income (step 1) is more than the appropriate minimum guarantee (step 2), deduct the appropriate minimum guarantee from the income. Calculate 40 per cent of the excess and then deduct this figure from the amount calculated at step 5.  This will be the amount of savings credit a person will be entitled to.

Where the figure calculated (ie 40 per cent of the excess) is more than the figure calculated in step 5 then there is no entitlement to savings credit.

3.3 Example 1

June is aged 72 and lives alone. Her income includes her state retirement pension of £95.25 and a private pension of £35 per week. She lives in rented accommodation.

Step 1: calculate income