Recommendation 36

HM Government · verbatim extract 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 which together make up the Guarantee Credit element of Pension Credit. Historically, the SMG (which is the ‘means-test’) was thought of as the minimum level of income that the state assumed pensioners would need to meet day to day living costs (not including most housing costs) In addition to poverty alleviation, Pension Credit also had a secondary aim of rewarding past savings behaviour when it was introduced in 2003. It did this through a Savings Credit element. This ensured that pensioners who had taken steps to provide for their own retirement, e.g. with a private or occupational pension, didn’t having that additional income simply means-tested away – ending up no better off. Savings Credit therefore provided a form of taper and meant that households with income above the SMG (plus applicable additional amounts) could still get a small amount of Pension Credit. Savings Credit is still available for pensioners who reached State Pension age before 6 April 2016 i.e. before the introduction of the new State Pension. However, one of the key features of the new State Pension when it was introduced, was that the full rate would be higher than the SMG (for a single person) in Pension Credit. Part of the rationale for setting it at that level was to simplify the system and remove the need for the complex ‘savings’ reward. Indeed, the complexity and persistently low levels of Savings Credit take-up by those only entitled to that element of Pension Credit was another reason for abolishing it and instead targeting support at those on the lowest incomes – because by definition pensioners entitled to Savings Credit have a higher level of income than those entitled only to Guarantee Credit and therefore do not qualify for the full range of passported benefits. As well as reducing the need for a savings reward in Pension Credit, setting the full rate of the new State Pension above the SMG had the strategic aim of reducing reliance on means-tested support in the long term and thereby reinforcing the contributory principle, enabling people to better understand what they will get from the state and be more confident that they will benefit from making additional provision for their retirement (e.g. through automatic enrolment) or working beyond pension age. Introducing an income taper for the Guarantee Credit in Pension Credit would introduce far greater complexity into the benefit at a time when there are calls to simplify Pension Credit still further in order to make claiming more straightforward and boost take-up. Under the current system, it is relatively straightforward to understand whether somebody is likely to qualify for Pension Credit based on their income, if there were a taper much less so. One of the main concerns expressed about the current Pension Credit ‘cliff edge’ is that those with incomes only slightly above their applicable Pension Credit level miss out on passported benefits. However, subject to their capital not exceeding £16,000, pensioners on a low income who are not entitled to Pension Credit are still likely to be eligible for some Housing Benefit, Council Tax reduction and help with certain NHS costs including dental treatment, glasses and transport costs for hospital appointments. Raising the level of Pension Credit—which is in effect, what introducing a taper would do—would not only draw more pensioners into means-testing, it would increase expenditure on income-related benefits. And, if it matched or exceeds the full rate of the new State Pension, undermine the strategic rationale of the new State Pension. And crucially of course, wherever the eligibility line is drawn, even with a taper, there will be a point where entitlement ends not just to Pension Credit but also to passported benefits.