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The New Pension Credit
"The State will still look after us if we have little money". Yes they will but only up to a certain point. For those who have been unable to make or have not made provision for themselves - the government will still try to help - but only up to a minimal level.
The Minimum Income Guarantee (MIG).
They will top up your income if it is below certain thresholds. It is, however, means tested. If you have assets elsewhere such as cash in a bank or building society, other investments, business assets or property (excluding your main home), the Department for Work and Pensions will take these into account and may reduce your MIG. They currently discount 10% of the value of an asset to cover any sale expenses that you would incur. In simple terms, if you own other assets below the value of £6,000, they will be ignored, if you have assets between £6,000 and £12,000, your MIG will be reduced and if you have over £12,000 you will not receive any MIG top up at all. MIG tops up a Basic State Pension of £77.45 per week for a single person and £123.80 per week for a married man with dependent wife to £102.10 per week and £155.80 respectively.
This all changes though on 6th October with the introduction of the new Pension Credit which replaces MIG. With this in mind, we spoke to our Director, Ashley Clark, who has offered the following simplified explanation:
The Pension Credit
He advised that the Pension Credit is made up of two elements: The Minimum Guarantee and the Savings Element. The scheme is very similar to MIG in that the guarantee levels remain plus a new pension credit is given to reward those who have saved rather than penalise them with the means test and offer no additional benefits. The Minimum guarantee for a single person is £102.10 per week plus a pension credit maximum of £14.79 per week extra. A married man with dependent wife has a guarantee of £123.80 per week plus a pension credit maximum of £19.20 per week.
In simple terms, you get an extra income credit bonus for having your own savings. Unfortunately though, instead of means testing against the value of your assets - they will now means test against your income (or assumed income return on assets). Savings below £6,000 are ignored. Savings above this amount have an assumed income return of 10%. Other income is also taken into account.
How does the Pension Credit work?
The Guaranteed Element is the same as the current MIG i.e. single person £102.10 per week and a married man with dependent wife £155.80 per week. The Savings Element is worked out as a maximum 60p income increase for every £1 income you have in excess of the Basic State Pension. This is subject to a maximum Pension Credit given of £14.79 per week. If your income (or assessed income) exceeds the Guarantee threshold then you effectively receive a reduction of 40p for every £1 above the MG threshold. If your income (or assessed income) exceeds £139.10 per week for single people and £203.80 per week for couples, you will receive no Pension Credit at all. Sound complex? Of course it is - what do you expect from the State?
We have built a new State Pensions Centre in the Pensions Adviser.com to help you figure it out.
The Money Clinic
Learn something new about your money every week! Money Clinic Archives. This story is based on our views and understanding of UK law and taxation. These are subject to change. It is for information only and is not intended as advice in your particular circumstances . No responsibility is accepted for actions taken as a result of information supplied in this section. You should always seek professional advice from us first.