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23 Feb 2020

Millions missing out on £3,000 of pension credit: are you eligible to claim?

An estimated 1.3 million eligible households don't claim pension credit

Some 1.3 million households could be missing out on pension credits worth £3,000 per year, according to government data.

The government has launched a 12-week campaign to raise awareness of pension credit among those over state pension age.

It's encouraging people who are eligible to apply to claim the benefit which, on average, gives retirees an extra income of around £58 a week.

Here, we look at how pension credit works and explain how you can claim if you're eligible.

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What is pension credit?

Pension credit is a tax-free benefit aimed at boosting your state pension if you're retired and on a low income.

It's awarded to you based on your earnings - known as a means-tested benefit.

Pension credit is made up of two parts, called guarantee credit and savings credit.

You'll need to reach state pension age, which is 65 and gradually rising to 66 by October, to claim guarantee credit. Savings credit is only available to those who reached state pension age before 6 April 2016.

What is guarantee credit?

Guarantee credit is meant to ensure that no one over state pension age has to live on a weekly income of less than £167.25 for a single person or £255.25 for a couple in 2019-20.

When you apply for guarantee credit, the government looks at all of your income. This includes your state pension, any income from other pensions, income from any jobs you have and any savings of more than £10,000.

Couples are only eligible for guarantee credit once both people have reached state pension age. If you're in a couple and not eligible for guarantee credit, you can both apply for universal creditinstead.

If you were already receiving pension credit before 15 May 2019 and you're in a couple, then you can continue to claim the benefit regardless of your partner's age.

It's also worth mentioning that guarantee credit may be more for those who are severely disabled or have certain housing costs. You can use the government's pension credit calculator to see how much you could get.

Changes to guarantee credit for people with children

Furthermore, since February last year, guaranteed credit has contained an additional amount for those who are responsible for children.

You may be entitled to this if:

  • You have a main responsibility for a child under 16 years of age or a qualifying young person (someone who is aged 16 to 19 and in full-time education or approved training)
  • The child or qualifying person is living with you.

You must not be claiming tax credits or have been awarded tax credits in the previous year. If you have claimed tax credits in the previous year, you need to contact HMRC to see if it can continue your support.

Find out more:how to boost your state pension if you're a parent or a carer

What is savings credit?

The government gives savings credit to reward people in the UK for saving towards their retirement.

You'll have to be receiving the basic state pension - which is £129.20 per week, increasing to £134.25 on 6 April.

To qualify for savings credit you must also:

  • Have a minimum income of £144.38 a week if you're single and £229.67 a week if you're in a couple in 2019-20
  • Have made some provisions for your retirement, such as savings or a second pension.

The maximum savings credit you can get per week is £13.73 for a single person and £15.35 for couples per week. However, the more money you have, the less you get in savings credit.

For every £1 by which your income exceeds the savings-credit threshold, your savings credit is reduced by 40p.

All of your income is added together to work out how much you'll get. If you have any savings, the first £10,000 isn't counted. Then every £500 you have over that amount counts as £1 of income.

How to calculate pension credit

There is a pension credit calculator on the gov.uk website to help you check your eligibility for pension credit.

The calculator will also give you an estimate of the pension credit payment you're due for based on your earnings, benefits, pensions, savings and investments.

For example, say you have an income of £129.20 a week from the basic state pension and an income of £26.80 a week from a private pension, as well as £12,000 worth of savings.

I think I'm eligible to claim: what else do I need to know?

You won't have to pay tax on any pension credits you pay and you can backdate it for a maximum period of three months.

If you have been previously turned down because of your savings it's worth having another look, as your circumstances may have changed.

It's worth claiming pension credit even if you're only entitled to a few pounds. Receiving pension credit means that you're also eligible for housing benefit and a council tax reduction.

If you receive the guarantee credit element of pension credit you may be entitled to warm home discount - a payment of £140 to help those struggling to pay their energy bills during winter.

How to apply for pension credit

You can apply for pension credit four months before you reach your state pension age.

The quickest way to apply is by phone on 0800 99 1234.

Lines are open Monday to Friday, 8am to 6pm, except public holidays.

If you apply for pension credit and don't agree with the decision you receive, you may be entitled to appeal against it - this is also known as 'mandatory reconsideration'. See our article on appealing against a benefits decision for more advice.

Are there any state pension changes I need to be aware of?

Here are a couple of other state pension changes to look out for this year.

State pension increases

The state pension is increasing by 3.9% from 6 April 2020 thanks to the governments triple-lock system, which states that the state pension must rise by September's price inflation, average earnings growth or 2.5% - whichever is higher.

In this case, the state pension will be matching the 3.9% average earnings increase seen by UK workers in July last year. However, cuts of up to £70 a week will also come into force this year, which could vastly outweigh the pension increases.

Fewer free TV licences for over-75s

This year will also see controversial changes to free TV licences for over-75s come into force.

The BBC announced last year that from June 2020 only households with one person who receives pension credit will be eligible to receive a free TV licence, paid for by the broadcaster.

Currently, everyone over the age of 75 is entitled to a free TV licence. The BBC has said the changes are a result of a consultation of 190,000 people - 52% of which were in favour of reforming or abolishing free licences.

Find out more:how will the state pension changes affect me?

How to check your state pension

The amount of state pension you receive depends on when you reached state pension age and the number of national insurance contributions (NICs) you've made.

You need at least 35 years of contributions to receive the full new state pension and at least 10 years to get anything at all.

To get the full basic state pension (for those who reached state pension age before April 2016), you need 30 years of NICs to get the full rate. If you haven't reached state pension age, you can check your state pension forecast through the government's check your state pensionwebsite.