State pensioners are being warned about a £10,000 savings limit that could impact their eligibility for a vital income-boosting extra benefit, Pension Credit. Right now, state pensioners can collect £230.25 per week in pension payments if they have a full National Insurance record and they retired after 2016, claiming the new state pension.
But the pensions system is complex, and there are many factors which affect the amount you’ll actually be paid each week. For those on the old basic state pension, especially if they don’t have a full National Insurance record, the amount will be much lower than that, maxing out at £176.45 per week in the best-case scenario. That’s why many state pensioners need an income top-up from the DWP via the Pension Credit benefit in order to have enough money to live on in their old age. But there is a little-known restriction in place – the £10,000 rule for Pension Credit.
State pensioners can claim Pension Credit if they earn less than about £227 per week, either via pension payments or other income sources. For those on the old basic state pension – which at its basic rate pays a maximum of £176.45 per week, even with a full National Insurance record – it could top up your weekly income to almost the same level as a state pensioner on the new post-2016 state pension (Pension Credit is £227.10, but the full new pension is just a few pounds per week more at £230.25).
But there is another limiter for eligibility, aside from weekly income: savings. If you have savings in savings accounts totalling £10,000 or more, your Pension Credit eligibility will be reduced by £1 for every £500 of savings you have above the £10,000 threshold.
Stephen Lowe, director at retirement experts Just Group, warned that the £10,000 threshold could cause some pensioners to lose money and have benefits reduced.
He told ThisIsMoney: “The £10,000 lower capital limit means that every £500 of savings – not including the main residential property – held by people who qualify for pension credit counts as £1 income a week, which can erode the income received from the benefit.
“This feels unfair on two fronts given many pensioners will aim to keep a rainy-day fund in the event of emergency repairs or a large, unexpected cost.
“It is the equivalent of a 10.4% interest rate. Secondly, the limit has not moved since 2009 and it is likely therefore that more and more people are seeing their benefit income reduced as they fall into this bracket.”
The Government’s gov.uk site explains: “If you have £10,000 or less in savings and investments this will not affect your Pension Credit.
“If you have more than £10,000, every £500 over £10,000 counts as £1 income a week. For example, if you have £11,000 in savings, this counts as £2 income a week.”
It means that if you have too much money in savings, you could be ineligible for Pension Credit and therefore be unable to top up your weekly income from the state in retirement.
While there isn’t a fixed limit on savings, if you had, for example, £110,000 in savings, then £100,000 of your savings would be above the £10,000 threshold. £100,000 is 200 increments of £500, which means the eligibility calculation would equivocate that to £200 per week income.
If you also had a state pension payment of £176.45 per week, that would be £376.45 and you wouldn’t be eligible for Pension Credit. Of course, your specific circumstances may be different, how much income you have from your state pension calculation (based on your NI record), your savings and other income are all factored in to your personal eligibility.
Some types of income are disregarded in calculations, for example Attendance Allowance, PIP, Disability Living Allowance and some other DWP benefits do not count, as well as any adoption or fostering allowances, a dependant child’s income or Scottish Carers Allowance Supplement payments.
One upside is that starting this year, Pension Credit will no longer be required in order to claim a winter fuel payment. That means pensioners who would have been over the savings limit for Pension Credit will now be able to get a winter fuel payment this winter after all.
However, the new £35,000 threshold for a winter fuel payment does still take savings interest into account as income, so it’s still possible to be ineligible for a £200 to £300 winter fuel payment due to savings, although you’d need to earn £35,000 in total from income and savings for this to be an issue.