Pension Credit is a useful tax-free income and savings supplement that opens the door to many other financial benefits.
Yet the Department for Work and Pensions says up to a million pensioner households eligible for the credit are not claiming it.
In this guide we answer:
What is the pension credit?
The pension credit is a means-tested weekly benefit for people over the legal retirement age and on low incomes.
If you are eligible for redit, you will also be entitled to many benefits such as free prescriptions and a free TV license if you are over 75.
There are two types of pension credit:
- Guarantee credit – additional income if you have low income
- Savings Credit – a smaller benefit paid to those who have prepared for retirement with savings or income
Depending on your personal situation, you may be entitled to one or both parts. You can claim a pension credit whether or not you are still working.
Difference Between State Pension and Pension Credit
The state pension is your right to retirement income from the government. The pension credit is a supplement to this weekly income.
The amount you will receive in state pension is based on:
- National insurance contributions you have paid during your working life
- Or national insurance credits you accrued during periods when you were not at work – for example raising children and claiming Child Benefit
Under the new pension system, i.e. for those reaching retirement age after 6 April 2016, the maximum amount you can receive in your state pension is 179.60 £ per week.
The pension credit is only available to those who reached statutory retirement age before 6 April 2016. The maximum statutory pension for this group is currently £137.60 per week. Read more in our article how much state pension will I get?
You can claim a pension credit whether you are working or not, it is not taxed and you do not need to have paid National Insurance.
IMPORTANT: Pension credit is not paid automatically, which is why so many people miss it.
You must apply and have your income and savings assessed to see if you qualify.
Who is entitled to the pension credit?
The criteria for obtaining the guaranteed pension credit and the savings pension credit are different.
This credit supplements your weekly income up to a guaranteed minimum amount. To be eligible:
- You must live in England, Scotland or Wales
- Applicants must be of pension credit age, i.e. the same as your state pension age
- If you are a couple, you must both have reached the legal retirement age
- You don’t need to be married or in a PACS. Living together classifies you as a couple
- You must be low income
The legal retirement age is now the same for men and women and is gradually increasing, which makes it a little more complicated to determine. You can use the government calculator to help you determine when you can claim.
The income used in your assessment is what you receive from work, public and private pensions and any savings income over £10,000.
If you exceed the income limits for the guarantee credit, you can still claim the pension savings credit.
What counts as income and savings?
When calculating what you are entitled to, your income will be taken into account. This includes:
- All labor wages
- State pension or other pension income
- Most social security benefits, e.g. care allowance
It is important to note, however, that not all benefits are considered income and will not be taken into consideration when calculating your entitlements. For example:
- Housing allowance or housing tax reduction
- Attendance allowance
- Disability living allowance or payment for personal independence
- Payments such as winter fuel allowance
- Family allowances
You should also consider your savings and investments, as these will affect the amount of pension credit you will receive. They include:
For every £500 above £10,000 you have in savings and investments, you will be treated as having £1 per week of income.
To be eligible for this part, you must have:
- Reached the legal retirement age before April 6, 2016. If this does not apply to you, you may still be eligible if you are in a relationship and your partner retired on this date
- Saved money for retirement – for example through a private pension
- A weekly income, known as the “savings credit threshold”, of at least:
- £153.70 if you are single
- £244.12 if applying as a couple
The income rules for Crédit d’Epargne are different from those for Crédit de Garantie, so you do not count the income you receive:
- work tax credits, contributory ESA or contributory JSA
- incapacity benefit or severe invalidity allowance
- maternity allowance
- maintenance payments
How much do you receive in pension credit?
The amount of pension credit you receive depends on your situation. You can find out more about pension credit eligibility on the government website here.
Guarantee credit amount
If you meet the eligibility criteria, this will supplement your weekly income for:
- £177.10 if you are single
- £270.30 if you have a partner (joint weekly income)
You may still be able to claim if you have higher income or a supplement if you have low income, if you:
- have a severe disability (£67.30 per week)
- you are looking after someone (additional £37.70 per week – as long as you are on carer’s allowance)
- you have savings
- you have housing costs
To be eligible, you must have either:
- Attendance allowance
- Armed Forces Independence Payment
- The Daily Living Component of Payment for Personal Autonomy
- The average or highest rate of the care component of the Disability Living Allowance
Savings credit amount
If you meet the eligibility criteria, this will supplement your weekly income by:
- Up to £14.04 per week if you are a single pensioner
- Up to £15.71 for couples
You must have reached the legal retirement age before April 6, 2016 to benefit from a savings loan and earn more than a certain weekly threshold. But for couples, if only one partner meets all the requirements, you may still be eligible.
It is not necessary to be eligible for the pension guarantee credit to be eligible for the savings element. Remember that owning your own home and having modest savings shouldn’t stop you from checking how much you could claim.
There is no savings limit for pension credits, but if you have more than £10,000 it will affect the amount of credits you receive.
You can use the Government Pension Credit Calculator to check your eligibility and entitlements. Learn more about ways to give your retirement capital a boost here.
How to register for pension credit
To apply for a pension credit, you will need the following:
- National insurance number
- Bank account and branch code
- Details of your income, savings and investments
You can call the Pension Credit Application Line on 0800 991 234 and an adviser will complete the application for you. Or you can apply online or by mail.
You will need to print out a claim form or call the claim line to request one. Post it to The Pension Service 8, Post Handling Site B, Wolverhampton WV99 1AN.
Although you must be of legal retirement age to be eligible, you can claim a pension credit up to four months before you want to start receiving it.
You can apply at any time after reaching the legal retirement age. But your request can only be backdated up to three months.
How to check my pension credits
Credits are paid directly to your bank, building society or postal account every four weeks.
If you are unhappy with the decision on your pension credit, before you can appeal you must request what is called a ‘mandatory review’ within one month of the decision.
Read the experiences of a Times Money Mentor reader: “I started contributing to a pension when I was 22.”
Other benefits to which you are entitled if you receive a pension credit
If you qualify for the pension credit, you will not only receive money from this benefit, but you will also be eligible for other benefits. These include:
- Reduced or no housing tax (depending on who you live with)
- You can get your rent paid in full through Housing Benefit, if you rent
- Landlords may be eligible for assistance with mortgage interest, ground rent and service charges
- Free subsidies for home insulation and boiler replacement
- Free TV license if you are over 75
- Warm Homes Discount and Cold Weather Payout of £25 when the temperature is 0°C or below for 7 consecutive days
- Help with NHS costs such as prescriptions, glasses and dental, and transport costs to hospital appointments
- Caregivers may be able to get Carer Addition, which is worth up to an extra £37.70 a week
It is important to apply for pension credits, even if you have been denied in the past. You should reapply every year, as rates and thresholds — and your situation — may change.