Pension Credit – background

Pension Credit was introduced in October 2003, replacing the Minimum Income Guarantee (MIG) as the main means-tested benefit for pensioners. There are currently two parts to Pension Credit: the Guarantee Credit and Savings Credit. Guarantee Credit provides financial help for people aged over the “qualifying age” for Pension Credit (linked to the State Pension age for women) whose income is below a set amount. Savings Credit is an extra amount for people aged 65 or over, who have made some provision for their retirement (such as savings, or a second pension). Changes have been made to the Pension Credit rules since its introduction. In October 2008, a package of changes were introduced which included: extending the length of time for which Pension Credit could be paid during a temporary absence abroad; changes to the process for claiming and the requirements to report changes of circumstances.  In addition, the length of time for which Pension Credit can be backdated was reduced. In November 2009, the amount of capital that can be disregarded increased from £6,000 to £10,000.

Further changes will be introduced by the Welfare Reform Bill 2010-11. This would provide for the introduction a new Universal Credit (an integrated working-age benefit, paid to people in and out of work, replacing a number of existing in and out of work benefits). The Bill also makes changes to Pension Credit. In particular, it provides for the introduction of a new Housing Credit element to replace Housing Benefit for people of Pension Credit qualifying age. Also, in future, both partners in a couple will need have to have attained qualifying age in order to receive Pension Credit. The entitlement conditions for the carer’s additional amount are changed to remove the explicit link to Carer’s Allowance.

In April, the Government published a Green Paper on options for State Pension reform. One of its proposed options (the introduction of a single-tier flat-rate State Pension set at the level of the standard minimum guarantee in Pension Credit) would reduce the number of pensioners needing Pension Credit in future.

This note looks at how the Pension Credit works and some of the issues raised in connection with it. For a fuller discussion of the background to Pension Credit, see Library Research Paper 02/19 The State Pension Credit Bill [HL].