What is Pension Credit and How Does it Work?

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By Cai Bradley
Updated on Thursday 2 April 2020

Pensioners checking their pension credit letter

In an ideal world, we’d all enjoy a perfectly comfortable retirement with no worries or concerns.

Unfortunately, not everyone enjoys an easy sail into the sunset when they begin life after work; retirement can be difficult and many people who are on low incomes can end up in financial hardship.

There is, however, some support available in the shape of tax-free benefits designed to help those who are struggling financially.

One of those benefits is pension credit, a scheme with the sole purpose of helping retired people on low incomes and one that can provide thousands of pounds a year to those who are eligible.

Our guide explains what pension credit is, whether or not you qualify to receive it, and how much you could get if you’re entitled to the benefit.

Pension credit explained

So, what is pension credit? It is a tax-free benefit offered by the UK government to certain people that have reached state pension age. It provides a much-needed income boost and can be paid either weekly, fortnightly, or every four weeks.

Pension credit is available to both single pensioners and those in couples, including widows and widowers. 

Despite it being a valuable income top-up and over three million households being eligible for it, the government has reported that around 40% of those who are entitled do not claim it. One of the main reasons for this is, they say, because many people are unsure of their pension credit eligibility.

Read more: Saving for Retirement: Pensions and Alternatives

How much is pension credit?

The average amount a claimant in the UK receives in pension credit is £58 a week (or over £3,000 a year).

How much you’re eligible to claim depends on your income and the amount of money you have saved or invested. If you live with a partner, your entitlement depends on your combined income and savings.

How does pension credit work?

Pension credit can be split into two slightly different parts – guarantee credit and savings credit.

Guarantee credit is a type of income booster or ‘top-up’ for pensioners on low incomes. Single pensioners with a weekly income of anything below £167.25 (including their pension) will be paid the difference so that their income reaches £167.25. Couples with a joint weekly income of less than £225.25 will receive a benefit amount to bring their total income to £225.25.

When you apply for guarantee credit, the following is considered:

  • Your basic pension
  • Any additional state pensions
  • Income from other pensions
  • Income from any jobs
  • Social security benefits
  • Your savings and investments above £10,000

Savings credit is a type of reward for people with a certain amount of retirement savings. It can be worth up to £13.73 for a single person or £15.35 for couples, but the requirements are strict.

To be eligible, retirees must have a minimum income of £144.38 per week if they’re single and £229.67 a week if they’re in a couple. Those who are eligible will receive 60p of savings credit for every £1 their income is over the minimum requirement, up to a maximum of £13.73 (for single people) or £15.35 (for those in a couple).

Bear in mind that you can only receive savings credit if you reached state pension age before the 6th of April 2016.

Read more: Why You Should Save Into a Pension

Who is eligible for pension credit?

Your pension credit entitlement depends primarily on your residency, age, income and savings.

To qualify, you must:

  • Be a UK resident
  • Have reached state pension age (check the GOV.UK website to find out if you have)

The earliest you are able to apply for pension credit is four months before you reach the minimum state pension age, but remember that you can claim any time after you’ve reached that age.

Do I qualify for pension credit?

To find out whether or not you’re eligible, give the pension credit helpline a call on 0800 99 1234 or use the government’s pension credit calculator.

Your personal pension credit eligibility depends on a variety of factors and things can get complicated when it comes to calculating your savings and investments, so be sure to get in touch with them if you’re unsure of anything.

You might like: Why You Should Have Your Pension Reviewed

How much money do you need in the bank to qualify for pension credit?

There is no limit, as such, to how much savings you need to have to qualify for pension credit, but if you have more than £10,000, it will impact the amount you’re eligible to receive.

If you have over £10,000 saved, things get slightly more complex, so be sure to contact the helpline if you want to find out exactly how much you’d be entitled to and whether or not it’s worth trying to claim.

Pension credit: changes to the rules

Changes to the pension credit rules in May 2019 mean that couples can now only start claiming if both partners are over the minimum state pension age, rather than just one.

Couples where one partner has not yet reached state pension age may be required to claim universal credit as an alternative, but it’s often worth far less. In fact, it can be up to £7,000 less than they’d receive in pension credit, according to Age UK.

There are some exemptions to “mixed-age” couples (as Martin Lewis’ MoneySavingExpert calls them), such as those who are claiming housing benefits.

Notifying pension credit of a change of circumstances

If you receive pension credit benefits then it is crucial that you inform the Pension Service about any changes that might mean you become entitled to claim less or more money.

You should report any changes to your income (or money in general) and your living arrangements, regardless of how minor you personally might think it is. For example, you should inform the Pension Service when someone living in your household plans on moving out.

Why has my pension credit stopped? If your pension credit has unexpectedly halted, you should contact the pension credit helpline on 0800 99 1234. It is likely to be a result of changes made to your income or personal circumstances, but it’s always worth giving them a call if you notice a change in the amount you receive.

How to claim pension credit

The easiest way to claim pension credit is to call the helpline on 0800 99 1234, as you can make an application by phone with little hassle.

To make a claim, all you need is your National Insurance number, your bank account details, and information on your income, savings and investments.

As we mentioned, four in ten of the three million households that are entitled to pension credit do not claim it, which is basically turning down free money. If you think you or a family member might be eligible, give the Pension Service a call and find out as soon as possible!

Related articles:

Saving for Retirement: Pensions and Alternatives

Why You Should Save Into a Pension

Why You Should Have Your Pension Reviewed


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