State pensioners with £10,000 in savings are seeing their Department for Work and Pensions (DWP) Pension Credit reduced, and experts are now calling the long-standing capital limit unjust and out of step with inflation. The £10,000 lower capital limit means that every £500 of savings held by pension credit claimants – excluding their main residential property – is treated as £1 of weekly income, which then reduces the benefit paid by the Labour government.
Experts: Frozen limit punishes prudent pensioners
Henry Tapper, chair of AgeWage and Pension Playpen, said: “Pension credit is means tested - but the 'means' that are tested aren't what they were because of inflation. Refreshing the amounts people can have in their accounts before losing a pension credit claim is both just and easy for the Department for Work and Pensions to do. An announcement from the DWP on this could trigger many people to look again at pension credit and inroads in the estimated 850,000 pensioners eligible but not claiming.”
David Cooper, a director at retirement specialist Just Group, added: “This feels unfair on two fronts given many pensioners will aim to keep a rainy-day fund in the event of emergency repairs or a large, unexpected cost. It is the equivalent of a 10.4 per cent interest rate. Secondly, the limit has not moved since 2009 and it is likely therefore that more and more people are seeing their benefit income reduced as they fall into this bracket.”
Former pensions minister highlights wider problems
Former Pensions Minister Ros Altmann said: “There are huge problems with the help available to the lowest income pensioners. So many are too proud to claim what they see as 'handouts' even though this is part of their entitlement because we all know the UK state pension is so low relative to all other developed countries. Those just above the pension credit level lose out on thousands of pounds of extra benefits which pension credit recipients can enjoy – such as council tax and energy bill rebates, free TV licences and healthcare, so they end up far worse off than others just because they have small pensions or some savings.”
Savings assumption 'far above market rates'
Altmann also pointed to a third issue: the savings aspect of pension credit does not examine the actual income savers receive. “If they have over £10,000 savings, the means test assumes they receive a level of interest far, far above market rates – over 10 per cent interest!” she said.
The comments come as the DWP faces growing pressure to reassess the capital thresholds for Pension Credit, which have remained unchanged since 2009. With inflation eroding the real value of savings, more pensioners are likely to fall into the bracket where their benefit is reduced, according to the experts quoted.
The estimated 850,000 pensioners who are eligible for Pension Credit but not claiming it could benefit from any future DWP announcement on refreshing the capital limits, as Tapper suggested. The call for change follows a separate report on new HMRC 'per mile' charges for drivers due to come into effect from September.
