Why are people with pension credit better off than me? Answers from Steve Webb

I worked to get my full state pension when I retired, so why are people with pension credit better off than me? Answers from Steve Webb

As I retired this year I received a full pension of £ 700 per month which meant that I was considered not to need pension credit.

However, people who qualify for this credit (with an income of £ 700, the same as me) do not have to pay council tax, along with many other perks.

I worked six years longer than those who received the original state pension, but now I am in a worse situation of £ 140 per month as I cannot claim this benefit. How can this be called fair?

Retirement Finances: I worked to get my full state pension, so why are people with pension credit better off than me?


Steve Webb responds: The situation of people who have contributed and built up a full state pension versus those who need a means-tested supplement is still controversial.

As I will explain, in some ways the potential injustice has diminished in recent years, but it is true that some recipients of benefits may get more help than others.

Until the introduction of the new state pension in 2016, there was a pretty strong argument that it was a waste of time to save small pension amounts because it only robbed you of it. other advantages.

To give a specific example (and using today’s figures), the old-fashioned basic state full pension is worth £ 137.60, and someone who has been self-employed their entire life and constituted only a basic pension may well achieve this figure.

Meanwhile, the pension credit rate is currently £ 177.10 for a single person.

Steve Webb: Find out how to ask the former Pensions Minister a question about your retirement savings in the box below

Steve Webb: Find out how to ask the former Pensions Minister a question about your retirement savings in the box below

This means that the self-employed person in this example could get almost £ 40 per week in pension credit to supplement their income.

Any private pension they had built up would reduce their pension credit. So it could be argued that the first £ 40 of private retirement savings was largely a waste of time.

Due to the existence of the “savings credit” the calculation would not be so simple, but most of the benefits of private savings would still be clawed back.

It was partly to remedy this type of injustice that the new public pension system was introduced.

All the previous elements of the old system (basic pension, state supplementary pension, etc.) have been merged into a single ‘lump sum’ amount, currently set at £ 179.60 per week.

The idea of ​​the new system is that workers would build up a full flat-rate pension at that rate and would also be “automatically enrolled” in an additional company pension.

Together these two pensions would give a typical worker a significantly higher income than someone who relied solely on a pension credit of £ 177.10 per week.

It is true, as you point out, that obtaining a pension credit can also be a “passport” to other forms of assistance.

I have paid NI for 44 years but get a lower state pension than people retiring now with £ 179.60 per week – why is that fair?

A constant stream of older readers are writing to Steve asking how come they are retiring with a state pension much more stingy than the full rate of £ 179.60 available today.

He explains in a previous column here how the April 2016 overhaul was designed to be fair for everyone, and why people who reached state retirement age before that don’t need to be. feel abused.

Holders of a pension credit can benefit from rental assistance or housing tax, can claim cold weather allowances and, from the age of 75, can obtain a free TV license.

But it’s not true to say that if you’re just a few pounds above the pension credit level, you don’t get any of that.

In particular, rent and council tax assistance is also available for low-income retirees, even if they are slightly above pension credit levels.

In your own case, if your income literally exceeds the pension credit by a few pounds, you should contact your local authority for help with the council tax.

They will take your savings into account, but in principle you should be able to benefit from housing tax assistance even if your income is slightly above the pension credit threshold.

You might be interested to know that the number of people coming within the scope of the pension credit system is steadily decreasing every year, with around one million beneficiaries fewer than ten years ago.

As you may know, I was involved in the design of much of the current system and my aim was to get as many people as possible to build up both a decent public pension in its own right. and a private pension on top of that, but with a decent safety net for a steadily declining number of people who had no other income to rely on.

Ask Steve Webb about the pension

Former Pensions Minister Steve Webb is This Is Money’s Agony uncle.

It’s ready to answer your questions, whether you’re still saving, quitting work, or juggling your finances in retirement.

Steve left the Department for Work and Pensions after the May 2015 election. He is now a partner in the actuarial and consulting firm Lane Clark & ​​Peacock.

If you would like to ask Steve a question about pensions, please email him at [email protected]

Steve will do his best to respond to your post in a future column, but he won’t be able to respond to everyone or correspond privately with readers. Nothing in his responses constitutes regulated financial advice. Posted questions are sometimes edited for brevity or other reasons.

Please include a daytime contact number with your message – it will be kept confidential and will not be used for marketing purposes.

If Steve is unable to answer your question, you can also contact The Pensions Advisory Service, a government-backed organization that offers free assistance to the public. TPAS can be found here and its number is 0800 011 3797.

StevWe receive many questions about the state pension forecast and about COPE – the equivalent of contracted retirement. If you write to Steve on this topic, he answers a typical reader question. here. It includes links to several of Steve’s previous columns on state retirement forecasting and contracting out, which might be helpful.