The Pension Credit is a new type of income support benefit to come into effect in October 2003. The Pension Credit replaces the Minimum Income Guarantee for pensioners but has come under fire from insurance companies.
Legal & General said that the Pension Credit was a 'real boost' for people that saved into pensions and that it incentivised people to save. However, the Pension Credit is still a means-tested benefit and only certain people will benefit.
The Association of British Insurers is one of the organisations campaigning for the Credit to be scrapped, stating that it was: 'storing up problems for future generations'.
Scottish Equitable commented that many people do not claim the benefits they are entitled to because they are means-tested. They also said that when the Pension Credit was coupled with savings of £1, the pensioner would only get 60p. Prudential said: 'The credit is necessary for pensioners, but we realise it is a potential disincentive for future pensioners to save. This is something which needs to be addressed'.
Our View:
As with any means-tested benefits, the incentive to build up your own savings is diluted. If the Pension Credit completely disregarded savings upto a decent level then more people would benefit and feel claiming was worthwhile. Many pensioners also put off claiming benefits because of the complex forms they have to fill in. If you can remember the introduction of the Minimum Income Guarantee, the form was originally huge and had to be re-drafted.