If you reached retirement age after 6th April 2016 you will receive the “New” rather than the “Old” State Pension.
On the face of it, the deal looks great for those entitled to just the Basic State Pension – rather than being worth £122.30 per week (when paid in full), the New State Pension (NSP) is £159.55 – £37 per week more. Who wouldn’t want that?
Well, for those on a low income and in receipt of the Old State Pension, the level of retirement income is set by the value of “Pension Credit” rather than the State Pension. Pension Credit guarantees low income pensioners a top-up of the value of their State Pension to £159.35. This means that those receiving the Old State Pension at a rate of £122.30 can receive a top-up of £37 per week.
For those on the New State Pension who are getting £159.55, their income is 20p per week higher than the Pension Credit minimum income guarantee – so they don’t get any Pension Credit.
Okay, so overall for this group, the New State Pension might not be worth much more – but they are getting basically the same as those on the old State Pension. Not looking like such a problem – yet.
Pension Credit and Fuel Poverty support
There the story should perhaps end – lots of low income Pensioners shifted off Pension Credit through receipt of the New State Pension. Not left much better off, but no worse off either.
Except that Pension Credit provides access to other support – and in particular, support with home heating costs in the winter.
Those in receipt of Pension Credit Guarantee are in the so-called “core” group for the “Warm Home Discount” – a £140 discount on their energy bills. This means that they will get the discount automatically deducted from their bills.
Whilst there is a broader eligibility group, the provision of the discount to people in this group is at the discretion of the supplier, and comes from cash limited funds.
People in receipt of Pension Credit (including those just receiving an additional “savings” component of the benefit, which is paid to people on account of having saved towards their retirement) may also receive Cold Weather Payments of £25 per week in periods of cold weather – measured as temperatures falling below zero in your local area for seven consecutive days.
How many people might lose out?
DWP statistics indicate that there are around 1.5 million Pension Credit recipients receiving guarantee credit (with or without an additional “savings” component which is paid to people on account of having saved towards their retirement) with an additional 300,000 receiving savings credit only.
DWP analysis suggests that in 2020 around 8% of those reaching state pension age after the introduction of the new State Pension would be entitled to Pension Credit guarantee under the old system: as a result of the introduction of the New State Pension, this is expected to be around 7%.
Based on around 3,500,000 people reaching pension age between the introduction of the new State Pension in 2016 and 2020, this would mean a reduction in the number of low income Pensioners receiving Pension Credit (guarantee) – and as a result pushed out of automatic entitlement to the Warm Home Discount – of around 35,000 at the end of the decade.
As mentioned above, Cold Weather Payments are not only paid to those receiving the “guarantee” component of Pension Credit but also to those receiving the “savings” component. The latter part of Pension Credit is being scrapped altogether with the New State Pension. This means the number who could be affected is likely to be considerably larger. DWP estimates suggest that, under the old system, in 2020 around 14% of those reaching pension age after the introduction of the new State Pension will be entitled to some form of Pension Credit (including savings credit), under the new State Pension this reduces to 7%. This would represent a fall of around 245,000 pensioners who could be entitled to a cold weather payment to help them through a period of freezing weather at the end of the decade.
Since the NSP was introduced in April 2016 thousands of low income pensioners will have been excluded from entitlement to one or both of these benefits already.
The impact on Housing Benefit and Council Tax Benefit
Loss of entitlement to Pension Credit also has wider implications as well. In particular, receipt of the Pension Credit Guarantee ensures that you are entitled to receive full Housing Benefit and Council Tax Reduction as well. Those on a low income not getting Pension Credit guarantee may still be entitled to receive these benefits, but will need to undergo an additional means test in order to do so.
What’s the solution?
One solution would be to set the level of the new State Pension slightly below that of Pension Credit so that someone receiving the full Pension, but who had no other income, would be entitled to receive Pension Credit (and as a result the associated benefits). Those with additional income (for example, from a private pension), would be excluded from entitlement as they would have been under the old State Pension.
Another alternative would be to “taper” new State Pension entitlement against Pension Credit, so that, only a portion of the value of the Pension is deducted from the value of Pension Credit someone can receive.
Regardless of the solution, we should remember that, these claimants are not getting significantly more money receiving (only) the New State Pension than those not receiving a full state pension because they haven’t (for whatever reason) paid sufficient National insurance Contributions over the course of their working life. This risks leaving them worse off overall on account of their pension, as a result of losing fuel poverty support (and potentially other assistance). It cannot be right that those who have paid contributions in order to earn a Pension risk ending up worse off as a result.