Source · Select Committees · Work and Pensions Committee
Recommendation 36
36
Rejected
Consider implementing a Pension Credit taper and assess options to mitigate its cliff-edge effect.
Recommendation
The Government should consider the case for a taper in Pension Credit, paying particular attention to equity of outcomes for people close to the threshold, and assess other options to mitigate the cliff-edge effect. (Recommendation, Paragraph 175)
Government Response Summary
The government rejects the case for an income taper in Pension Credit, citing concerns about increased complexity, potential impact on take-up, higher expenditure, and undermining the new State Pension's strategic rationale, while noting some benefits are still available to pensioners not receiving Pension Credit.
Government Response
Rejected
HM Government
Rejected
The primary purpose of Pension Credit is to alleviate pensioner poverty by providing direct financial support to pensioner households on the lowest incomes. Pension Credit does this by guaranteeing a minimum level of income—the Standard Minimum Guarantee (SMG) currently £227.10 a week for a single person and £346.60 for a couple—plus any applicable additional amounts for those with care needs, caring responsibilities or certain housing costs. Historically, the SMG was considered the minimum income needed for day-to-day living costs. When Pension Credit was introduced in 2003, it included a Savings Credit element to reward past savings, acting as a form of taper. Savings Credit is still available for pensioners who reached State Pension age before 6 April 2016. However, a key feature of the new State Pension (introduced after this date) was that its full rate would be higher than the SMG, simplifying the system and removing the need for the complex 'savings' reward, and targeting support at the lowest incomes. The strategic aim was to reduce reliance on means-tested support in the long term and reinforce the contributory principle. Introducing an income taper for the Guarantee Credit in Pension Credit would introduce far greater complexity into the benefit, making claiming less straightforward and potentially hindering take-up. The current system is relatively straightforward to understand. One main concern about the 'cliff edge' is that those slightly above Pension Credit level miss out on passported benefits. However, pensioners on a low income not entitled to Pension Credit may still be eligible for some Housing Benefit, Council Tax reduction, and help with certain NHS costs. Raising the level of Pension Credit via a taper would draw more pensioners into means-testing, increase expenditure, and, if it matched or exceeded the full rate of the new State Pension, undermine its strategic rationale. Crucially, even with a taper, there will always be an eligibility line where entitlement to Pension Credit and passported benefits ends.