What are the savings rules if you apply for pension credit?

Mounting bills mean an increasing number of elderly people are likely to apply for pension credit as they struggle to afford the essentials this winter.

Having some savings can affect how much people receive in pension credit, but a rainy day fund of up to £10,000 will be disregarded if your income is low and you meet other rules.

Nevertheless, this savings threshold has not changed since 2009, and although inflation remained slow for many ensuing years, a £10,000 fund is certainly worth a great deal less than it was back then.

Pension credit tops up weekly income to a minimum of £182.60 for single people and £278.70 for couples.

You can gain thousands of pounds on top via help for housing, heating, council tax, TV licences and other bills, and it unlocks the recent cost of living payment from the Treasury.

Hard-up elderly people are being urged by the Government to claim pension credit in an advertising campaign tackling myths that might deter them from applying – including that having savings, a pension or owning a home are barriers.

Finance industry campaigners led by influential expert Henry Tapper have also launched a drive to seek out the worst off pensioners in the country to urge them to sign up for pension credit.

What are the savings rules for pension credit?

You can have up to £10,000 in savings and investments without it having any impact on your pension credit if you meet other eligibility rules.

This is to recognise that many older people will have built up a pot of money over their lives, even if they are on low incomes, so they have something to fall back on in case of emergencies.

The Government also doesn’t want to penalise people for saving.

However, every £500 you have in savings over £10,000 is counted as £1 in income a week when your pension credit is calculated.

So, £10,000 is not a hard limit, just the threshold beyond which the amount of pension credit top-up you get starts to be affected.

However, it does create an effective, or assumed, interest rate on savings of over 10 per cent – £1 for every £500, which you most certainly don’t get from savings accounts.

It is not as punitive as that sounds if you only have small amounts in excess of £10,000, as it only applies to the portion of your savings above that level.

Meanwhile, in terms of other income, here is a full list of what else counts towards it (your state pension, other pensions, any earnings) and what does not (housing benefit, council tax reduction).

As mentioned above, the savings threshold has been frozen since 2009. There is no law enforcing a review every year as there is with some other key benefits figures, so changes are at the discretion of the Government.

Should the savings threshold be changed? This is what pension experts say

‘Pension credit is means tested – but the “means” that are tested aren’t what they were because of inflation,’ says Henry Tapper, chair of AgeWage and Pension Playpen.

‘Refreshing the amounts people can have in their accounts before losing a pension credit claim is both just and easy for the Department for Work and Pensions to do.

‘An announcement from the DWP on this could trigger many people to look again at pension credit and inroads in the estimated 850,000 pensioners eligible but not claiming.’

Sally West, policy manager at Age UK, supports a review of savings thresholds and limits affecting benefits.

‘Elderly people get very worried when they see their savings being used on day to day bills,’ she says.

‘It’s hard for them to build the savings up again and there might be emergency bills they cannot cover.’

Age UK staff can help callers to its free helpline apply for pension credit – see the box on the right.

Stephen Lowe, a director at retirement specialist Just Group, says: ‘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 per cent interest rate, around three times higher than most of today’s best buy savings rates.

‘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.

‘It is estimated that £10,000 in 2009 is equivalent in purchasing power to a little under £15,000 given the rate of inflation over the past 13 years.’

Lowe says the key remains boosting awareness of pension credit and providing support to help people apply, because too many are currently missing out on the valuable income it provides.

He notes that is important people are encouraged to check their benefits entitlement and pension credit rules before tapping into other sources of other potential income, like taking a lump sum out of their pension to hold in savings.

This may inadvertently tip them over the £10,000 savings threshold, and they will find the benefit they get is reduced.

Stephen Lowe: The £10k lower limit has not moved since 2009 and it is likely more and more people are seeing their benefit income reduced as they fall into this bracket

Former Pensions Minister and campaigner Ros Altmann says: ‘There are huge problems with the help available to the lowest income pensioners.

‘So many are too proud to claim what they see as “handouts” even though this is part of their entitlement because we all know the UK state pension is so low relative to all other developed countries.

‘Those just above the pension credit level lose out on thousands of pounds of extra benefits which pension credit recipients can enjoy – such as council tax and energy bill rebates, free TV licences and healthcare, so they end up far worse off than others just because they have small pensions or some savings.

‘Thirdly, the savings aspect of pension credit does not look at the actual income savers receive. If they have over £10,000 savings, the means test assumes they receive a level of interest far, far above market rates – over 10 per cent interest!’

What does the Government say?

‘We want to ensure pensioners receive all the support to which they are entitled and in the week of our recent Pension Credit Day of Action claims were 275 per cent higher than the same week the year before,’ says a Department for Work and Pensions spokesperson.

‘Disregarding the first £10,000 of savings and having no upper limit on savings ensures more vulnerable pensioners are able to receive this vital support. 

‘Alongside pension credit, our targeted action – including Winter Fuel Payments, additional £300 cost of living awards for pensioners and our energy measures – is supporting millions of pensioners across the country.’

What other rules do you need to bear in mind when applying for pension credit?

• You need to have reached state pension age, currently 66, but you can start your application up to four months beforehand. Applications can be backdated for three months, provided you were eligible during that period.

• You are only eligible if you and your partner – spouse, civil partner, or someone you live with in a couple – have both reached state pension age. There is an exception if one of you is receiving housing benefit for someone over state pension age. The rules on mixed age couples was introduced in mid-2019 and apply to people who have signed up since then.

• You might be able to get a small extra top-up called ‘savings credit’ if you reached state pension age before 6 April 2016.

• If you defer a state pension or other type of pension, you will be assumed to be receiving that income.

• You can still receive pension credit if you leave the country for up to four weeks, or longer for exceptions like bereavement or medical treatment.