Pensioners losing out on top-up credits

The UK’s poorest pensioners are losing out due to government assumptions that they earn 10 per cent interest on their savings, according to a pensions expert.

Pension credits, a form of benefit introduced in 2003, top up the basic state pension for those with little or no additional sources of income. They ensure that all pensioners have at least £124.05 a week to live on.

The credit is a means tested entitlement intended for those who do not have workplace pensions or savings to boost their basic state pension.

In order not to penalise those who have prudently saved their money, the first £6,000 of savings is not counted. After this, the means testing calculations assume a set level of income from savings. Rather than assess the actual returns, the government assumes that for every £500 a pensioner has as cash savings, Premium Bonds, shares, property or bonds, they receive an income of £1 per week.

The government said this is not an assumption of interest, but a “notional rate” used to calculate what income pensioners make from their savings. But Ros Altman, an independent pensions expert, pointed out that the calculation is an assumption that pensioners are receiving an annual interest rate of 10 per cent on their savings. “£1 a week is £52 each year for each £500. That’s a rate of interest that would have been optimistic back in 2003 when the benefit was introduced, but – following a series of rate cuts – it’s madness!” she said.

By refusing to acknowledge that savings income has been reduced significantly in the past three months, the government is denying pensioners credits they deserve, argued Ms Altman. She has contacted MPs to inform them of the anomaly and has called on the government to reform pension credits.

Pensioners have been identified as among the biggest losers from the recent base rate cuts. Savings rates have fallen accordingly, leaving many pensioners who rely on their savings for additional income much worse off.