WHAT IS PENSION CREDIT?
Pension Credit is a tax-free benefit available to individuals who have reached State Pension age. It is means-tested, meaning eligibility depends on having an income below a certain threshold.
ELIGIBILITY
You may qualify for Pension Credit if you are at or above State Pension age, which is currently 66. Pension Credit consists of two parts: Guarantee Pension Credit and Savings Pension Credit. Depending on your circumstances, you may be eligible for one or both.
Guarantee Pension Credit is available to those who reached State Pension age on or after April 6, 2016. Savings Pension Credit is available to those who reached State Pension age before April 6, 2016.
GUARANTEE PENSION CREDIT
Guarantee Pension Credit ensures your income meets a minimum level. For the tax year 2024/25, the minimum income is £218.15 per week for singles and £332.95 per week for couples. You could still qualify if your income is higher, and for example, you have a disability.
Additional amounts include:
- Carer Addition: £45.60 per week if you care for someone.
- Severe Disability Addition: £81.50 per week if you have a disability.
- Child Addition: £66.29 per week for each child or young person under 20.
SAVINGS PENSION CREDIT
Savings Pension Credit is for those who reached State Pension age before April 6, 2016. If eligible, you can receive up to £17.01 per week if single, or £19.04 per week if in a couple, for the tax year 2024/25.
PENSION CREDIT AMOUNT
The amount of Pension Credit varies based on several factors, including your income, savings, investments, disabilities, and caring responsibilities. On average, Pension Credit is worth £3,900 annually according to the Department for Work and Pensions, or about £75 per week. However, you could get less, or possibly more.
WHY IS PENSION CREDIT VALUABLE?
Pension Credit acts as a ‘gateway’ benefit, providing access to additional support such as:
- Housing costs (Council Tax discount, Housing Benefit, or Support for Mortgage Interest)
- Free TV licence for those aged 75 or over
- Assistance with NHS dental treatment, prescriptions, and transport costs.
Despite its benefits, around 800,000 eligible individuals have not applied for Pension Credit. Starting winter 2024/25, the Winter Fuel Payment will be limited to those receiving Pension Credit.
SAVINGS AND INVESTMENTS
If your savings and investments total £10,000 or less, they won’t affect your Pension Credit application. However, if you have more than £10,000 in savings, every additional £500 is considered as £1 of weekly income. This is known as ‘deemed income’.
For instance, if you have £11,000 in savings, it is treated as an additional £2 per week in income (since £1,000 over the threshold is divided by £500). This amount will be added to any other income you receive when calculating your Pension Credit entitlement.
YOUR PENSION
Your workplace or private pension can affect your Pension Credit, even if you haven’t withdrawn any money. Here’s how:
- No Withdrawals: Your pension pot isn’t counted as capital, but you’re assumed to receive ‘notional income’ as if you had an annuity.
- Regular Drawdowns: Any regular withdrawals are counted as income.
- Lump Sum Withdrawals: Lump sums are treated as capital. If your total savings exceed £10,000, every additional £500 is considered £1 of weekly income.
- Full Withdrawal: Taking out your entire pension is treated as capital, with the same £10,000 threshold rule.
- Annuity Purchase: Income from an annuity is counted as income.
Important: Spending or giving away your pension money can still count against you under ‘deprivation of capital’ rules, designed to prevent people from qualifying for means-tested benefits by reducing their assets.
Also, if you have delayed or deferred claiming your State Pension, the amount you would have received at State Pension age will be considered as income, along with any other income you have.
Further information and details on how to claim pension credit can be found on the GOV.UK website here: Pension Credit: Overview – GOV.UK (www.gov.uk)
The information contained within this article is purely for information purposes and does not constitute financial advice.
