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Poor could miss out on full pension credit

By Sarah Toyne

BBC News, May 30, 2002

Most affected will be women on low incomes

Hundreds of thousands of the UK's poorest female pensioners could miss out on part of the new pension credit because their basic state pension is too low.

The pension credit will be introduced in October 2003 and has been heralded by the government as a way of rewarding pensioners on low and modest incomes for saving.

It has two elements: a pension credit that will guarantee a single pensioner a minimum income of £100 a week and a savings element, worth up to £720 a year.

But many female pensioners who qualify for the main pension credit will not qualify for the savings element because they have not made enough National Insurance contributions towards their state pension.

This could also affect low-income men who for some reason have also not been able to pay their full amount of National Insurance contributions.

Government rule

In order to receive the savings element of the credit, which is worth up to £13.80 a week, pensioners must be receiving income above the level of the full basic state pension.

This is because anyone on full pension would have automatically paid their full quota of National Insurance contributions.

The government has defended this rule by saying that it must ensure the pension credit does not undermine the principle of paying National Insurance contributions.

It told parliament recently: "We believe that it is right that people should first use their money to pay contribution to the basic state pension."

How many could be affected?

According to official figures, a typical pension for a woman at 60 is just £58, and there are about four million pensioners currently receiving less than £70 a week from a basic state pension.

Not all of these people will miss out on the savings element of the credit, but women approaching retirement who left work to care for children during the 1960s and early to mid-1970s could be big losers.

Since 1978 women who have stayed at home to look after children have received "Home Responsibilities Protection", which basically means the government will pay for their NI contributions during this time.

But women who cared for children before 1978 were not protected - and often receive very small basic pensions.

This also means that they might not have paid enough National Insurance contributions to qualify for the savings element of the new credit.

Because of this, Steve Webb, Liberal Democrat Shadow Work and Pensions Secretary, has tried to push through amendments to the pension credit rules.

He told BBC News Online: "There is a whole group of people who have saved, women under 65, women with poor state pension rights who will get little or no reward for their savings.

"Once again women are the poor relations in pensions policy."

Another anomaly

In another anomaly, women who receive the full basic state pension are not permitted to claim the savings element until they reach 65.

Under current regulations, women can draw their state pension at 60.

From October 2003, women between 60 and 64 will be able to receive the main part of the pension credit, but not the savings element.

Sally West of Age Concern told BBC News Online that this could lead to disappointment and confusion.

She said: "People will have heard about a pensions credit which rewards savings, and will be disappointed to find out they won't qualify for another five years."

What is the Pension credit?

The government's intention to create a pension credit was announced in the 2000 Pre-Budget report.

The credit is means tested and will reward single pensioners with net incomes of up to £135 a week and pensioner couples with £200 a week from October 2003.

The State Pension Credit Bill has just received its third reading in the House of Commons and must now go back to the House of Lords.

But attempts to amend the anomalies penalising some women have proved unsuccessful.

Other concerns

It is estimated that up to five million pensioners could be eligible for the credit, or the equivalent of half of all pensioners.

But Ben Harding of Help the Aged is sceptical about how many people will actually benefit from the credit.

"They are saying an extra £2bn a year will be going to pensioners, but one wonders how much will be staying in the Treasury coffers due to low take-up," he said.

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