Am I now eligible for pension credit?

I am a 71-year-old widow who does not currently receive pension credit or any other means-tested benefits. Following the Budget increase in the savings limit to £10,000, could I be eligible for pension credit (or similar benefits)? I receive a monthly state pension of £300, plus another £136 from the teachers’ pension scheme as a widow’s benefit. I have about £10,000 of taxed cash savings, £45,000 in cash individual savings accounts (Isas) and about £10,000 in stock market Isas and shares, and I own my home.

Harvinder Channa, income specialist at the newly-merged Age Concern and Help the Aged, says you will not benefit from the Budget change in the “capital limit” for pension credit.

As a single person, you need to have weekly income below £130 to be entitled to the guarantee part of pension credit and less than £181 to be entitled to the savings credit part of pension credit (these amounts can increase if you have a severe disability or if you are a carer).

To calculate if you have income above £181 for the purposes of savings credit, your pensions’ income is added to an assumed income from your savings capital. This capital figure includes all forms of savings (including tax-free Isas and money left over from benefits), investments, land and property – apart from your home. It is assumed that every £500 of capital above £6,000 will bring in £1 of weekly income. The Budget will increase the £6,000 capital limit to £10,000 from November 2009.

Currently, your assumed total weekly income would be £227. To arrive at this figure, the income from your state and private pensions (£109 per week) is added to the assumed income from your savings. The latter is calculated by adding the value of your accounts, Isas and shares (£65,000), taking out the amount of capital ignored (currently £6,000) and dividing the total by 500. This gives an income from savings of £118 a week, which, added to your other income of £109, comes to £227.

As this sum is higher than both the threshold for pension credit guarantee and savings pension credit, you are not entitled to either of these benefits. When the amount of capital ignored changes from £6,000 to £10,000 in November, your assumed weekly income will reduce to £219, but this amount will still be too high to entitle you to either pension credit benefits.

The people who will gain from the raising of the capital limit are those with savings above £6,000, currently just missing out on benefits because their income is a little too high. They may find the change brings them into entitlement, and will need to make a claim.

For more information, contact the Department for Work and Pensions’ Benefit helpline on 0845 606 0265.

Is it worth doing pension top-up?

Wealth Questions (April 18/19) said it is possible to “buy” extra state pension by topping up an incomplete National Insurance contributions (NICs) record, even when you have already retired. I am a woman who was born in 1946 and am now drawing my state pension, but I spent 10 years in Brunei when I was not paying NICs. How do I go about doing a top-up and how do I check whether it is worthwhile?

Laith Khalaf, pensions analyst at Hargreaves Lansdown financial advisers, says it is possible for individuals working abroad to pay “Class 3” NICs to build up their entitlement to a UK state pension. These people must have lived in the UK for a continuous three-year period before the year for which they make contributions.

Furthermore, individuals can build up entitlement to the UK state pension by paying social security contributions locally while working in the EU or certain other countries with which the UK has a reciprocal agreement. However, Brunei is not one of these, so buying back extra years might make sense in your case.

In an odd quirk, those working abroad can pay Class 2 rather than Class 3 NICs to build up entitlement to the UK state pension. Class 2 contributions, which are generally only levied on the self-employed, currently cost just £2.40 a week compared with £12.05 a week for Class 3 contributions.

The difficulty is that you must make contributions within six years of the end of the year in which payments were due. So currently, you could only go back to the tax year 2003/2004. If some of the years you spent in Brunei were after that date, you should be able to buy back extra years – you can request the relevant form from HMRC’s Centre for Non-residents on 0845 9154 811.

There may be reasons why buying back state pension may not be a good idea – in particular, if you are receiving a state pension based on your husband’s NI record. In that case, buying back extra years may not supplement your NI record sufficiently to give you any additional pension in your own right.

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