Pensioners penalised for having a nest egg

Private pension savings worth more than £42,000 will push a single pensioner out of the government's new pension credit scheme, according to figures from specialists The Annuity Bureau.

It means the scheme, which will be formally launched next month, will exclude people with private pension income of more than £3,200 a year - many of whom were low-income workers in occupational schemes who have saved for 40 years.

Pensioner groups have branded the pension credit as overly complex and called for it to be replaced with a higher state pension. This week, Liberal Democrat pensions spokesman Steve Webb said the credit was likely to be a fiasco along the lines of the introduction of the tax credit scheme and lead to a "winter of discontent".

He pointed to the admission by pensions minister Malcolm Wicks that some pensioners will be forced to wait until next year before they are contacted by his department, and the system is unlikely to be fully in place until the summer.

Application helplines will be staffed by 1,500 operators, little more than half the 2,700 who were swamped by tax credit calls earlier this year.

With the DWP saying that each application will require a 20-minute call, Mr Webb calculated that the operators would be able to deal with no more than 31,500 applications each working day.

At that rate, processing the five million-plus households which have not yet been contacted could take as long as eight months, he said.

"By the time all the applications are sorted out, some of the poorest pensioners will be due payments of £800-£1,000," he said. "The payments will be backdated, so they will get the cash eventually, but presumably they need it now."

Ministers say the phasing in of the credit - 1.6m people have already been contacted - will prevent a repeat of the tax credit chaos. They believe the pension credit will overcome shortcomings in the present system called the minimum income guarantee.

It boosts the incomes of pensioners with little or no savings and guarantees an income of £102.10 for a single person and £155 for couples.

Anyone with income from private pensions or savings loses benefit £1 for £1, which can lead to a situation where elderly neighbours receive the same income even though one has saved in a pension that pays £1,000 a year.

The pension credit rewards savers, says the government, because it allows savers to keep some of the benefits even when their private income is higher than the £102.10 minimum income threshold. The maximum credit payment of £14.79 is taken back at a rate of 60p for every pound over £102.10.

This can be seen either as a 60p in the pound giveaway up to the threshold of £139, when the benefit has run out, or a 40p in the £1 tax rate.

Pensioner groups believe the complex taper and documents detailing the many rules governing the new scheme will deter pensioners from applying - and when they do apply, they will prevent them from appealing.

Age Concern says government targets show up to 1.5m pensioners could miss out.

A spokesman for Help the Aged says: "We've had anecdotal evidence that some pensioners have telephoned the pensions service call centres, been sent a form back in the post and then thrown it in the bin rather than sign it.

"Most people don't understand how their pension credit is worked out and some won't sign up for something they don't understand."

Why it will be hard to claim

The complex nature of the pension credit will prevent thousands of people claiming their full entitlement, pensioner groups warned this week.

Pensioners will also find it difficult to appeal against awards made by the Pensions Service, which is overseeing the credit's introduction, because they cannot calculate for themselves how much credit they should receive.

A glance at the tables above gives only a taste of the complex rules governing the credit. Income can either be offset against benefits or boost the thresholds, depending on what kind it is.

The guaranteed element is, to some extent, the easy bit. The government says single pensioners must take home an income of £102.10, which means that if the combination of basic state pension, Serps, private pensions and savings income adds up to less than this figure then the government will pay a top up.

Calculating if you are eligible for the savings element of the credit is more tricky.

If you receive extra cash as a carer or for a disability your thresholds will rise, effectively allowing you to offset more private income against benefits. If you are pay ing a mortgage, the payments will be taken into account.

Once your threshold has been set, your other private income can be boosted by the credit. If you have capital of more than £6,000 (£10,000 if you are in a care home) this will be assumed to produce a weekly income of £1 for every £500 over the limit.

Figures from Age Concern, which provided the information for our tables, show £7,200 will be counted as a weekly income of £3.

Pensions income is likewise added to the total. If the income of a single pensioner is more than £102.10 a week, but less than £139, the maximum credit payment of £14.79 is reduced by 40p for every £1 of income over the £102.10 mark.

If a couple's income is more than £123.80 a week, 40p in the £1 disappears from the maximum £19.20 credit payment - until you reach £155.80.

For further information write to Help the Aged, 207 Pentonville Road, London N1 9UZ, or call free on 0808 800 6565. Age Concern has a factsheet, (48) "Pension Credit from October 2003". Write to them at Freepost (SWB 30375), Ashburton, Devon TQ13 7ZZ, phone free on 0800 009966, or visit ageconcern.org.uk