Updated 03 December 2020
If you’ve reached retirement age and don’t have a significant pension pot to fall back on, pension credit can help to boost your income. This benefit will make sure your weekly income stays at a certain level, even if you haven’t paid enough National Insurance to qualify for a full state pension. But there are a few rules you’ll need to follow in order to make a successful claim.
Pension credit is a type of benefit offered to people who are over State Pension age. It’s a helpful way to boost your income if you have only a modest private pension, or none at all. There are two types of pension credit, though only one is offered to those who reach State Pension age this year.
This type of pension credit is designed to boost the income of pension-age people on low incomes. If you’re worried that you haven’t saved much for retirement, or haven’t reached 35 years of National Insurance contributions, pension credit can offer peace of mind and help you make ends meet.
If you reached State Pension age before 6 April 2016, you can claim this additional benefit. You’ll need to meet minimum income requirements, as it is a bonus rather than a safety net. It’s no longer offered to those who have newly reached State Pension age.
Claiming pension credit also makes you eligible for other financial assistance or benefits, including a free TV license (if you’re over 75), council tax reduction, housing benefits and boiler grants.
Pension credits are available to those who are State Pension age or above. Currently, that’s 66 for both men and women, but you can also use the government’s State Pension Calculator to double check if you’re eligible. Guarantee credits are broadly available for those on a lower income, or who haven’t got another source of reliable income (either private or state) to rely on.
To qualify for guarantee credit, you’ll need to have a weekly income of less than £173.75 if you’re single, or £265.20 if you have a partner or spouse. You’ll also need to have no more than £10,000 in savings or other investments (excluding the home you live in). If you haven’t paid enough National Insurance to qualify for a full state pension, or have claimed other state benefits and are under the threshold, you’re also likely to be eligible.
For savings credit, you or your partner will need to have reached State Pension age before 6 April 2016, and have a minimum income of £150.47 per week if you’re single, or a minimum combined income of £239.17 per week if you’re a couple, to claim.
The most common form of pension credit, known as guarantee credit, is what most people will claim. Government figures suggest the average person claims £58 per week, adding up to over £3,000 of extra income every year. The amount you receive will be tailored to your circumstances. Every form of income you receive will be taken into account, including:
Your savings or investments will also be assessed, unless they are under £10,000. However, there are certain exceptions to this, including if you pay mortgage interest, are a carer, are responsible for a child or have a severe disability.
Let’s say you take home £120 per week from your part-time job and are deferring claiming your pension. You could get a top up of £53.75 every week to boost your income.
If you and your partner reached State Pension age before 6 April 2016, you can also claim savings credit – often referred to as a government reward for those who have managed to save for retirement. You’ll receive 60p for every £1 of income over the minimum amounts, up to £13.97 or £15.62 per week for individuals and couples respectively.
Claiming pension credit is a relatively simple process. Here are the main steps to making a claim.
You’ll also need your partner’s details on hand if you’re making a joint claim. If you already claim your state pension and aren’t responsible for any young people, you can also claim online at gov.uk.
Statistics from the Department of Work and Pensions (DWP) suggest that 40 per cent of people who are eligible for pension credits do not claim, missing out on an average of £2,000 every year. Age UK also states that almost 90 per cent of pension credit claims are successful.
If you’re confident you meet the criteria, it’s best to apply. Even if you’re unsuccessful, you can apply again each tax year or if your circumstances change, such as losing your partner or facing a reduction in other forms of income (such as a part-time job).
Guarantee credit is a type of pension credit benefit that’s available to people who have reached State Pension age. Essentially, it provides you with a guaranteed weekly income of at least £173.75 if you’re single, or £265.50 if you’re living with a partner or spouse who is also eligible. It’s not the same as the full state pension, which can be up to £175.20 per week, but can be used to top up a basic state pension (£134.25 per week) if you need extra income.
You’ll need to have no more than £10,000 in savings to claim pension credit. This amount can be in cash savings, an ISA or other pension fund, or as another type of investment such as property. If you own the home you’re living in this will be excluded, and you can still be eligible for pension credit.
You don’t pay tax on either type of pension credit. Even if you’re still working, you’ll need to have an income far below the £12,500 threshold to qualify for pension credit, so you will not have to pay income tax in any case. However, if you are working and claim savings credit, then even though you may have to pay income tax on your job-related income, you will still not be taxed on your pension credit.
You can still work if you’re receiving pension credit. As long as your income is below £173.75 per week, or adds up to less than £265.50 per week if you’re claiming with your partner, you’re free to continue working and claim pension credit. If you’d like to continue to work past State Pension age, we’ve got plenty of advice on how to phase into retirement gradually.
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