Retirees across the UK are being issued a crucial warning about a longstanding savings rule that could significantly reduce their income from a key government benefit.
The £10,000 Capital Limit Explained
Pension Credit, a vital top-up for those on a low income in retirement, is affected by the amount of savings a claimant holds. The Department for Work and Pensions (DWP) states that if you have £10,000 or less in savings and investments, your eligibility for the full benefit is untouched. However, crossing that threshold triggers what experts describe as a harsh calculation.
For every £500 held in savings above the £10,000 limit, the DWP assumes you have an extra £1 of weekly income. This 'notional income' is then deducted from your Pension Credit entitlement. To illustrate, an individual with £11,000 in savings would be deemed to have £2 of extra income per week, thereby reducing their benefit payment.
Deferred Pensions and the 'Rainy-Day Fund' Dilemma
The rules also consider income you could be receiving but have chosen to defer. If you are entitled to a personal, workplace, or state pension but have not started claiming it, the amount you would expect to get is still counted as income for Pension Credit purposes. Furthermore, you cannot build up extra state pension by deferring it if you or your partner are already receiving Pension Credit.
Stephen Lowe, a director at retirement specialists Just Group, highlighted the double injustice of the policy. "The £10,000 lower capital limit means that every £500 of savings – not including the main residential property – held by people who qualify for pension credit counts as £1 income a week, which can erode the income received from the benefit," he said.
"This feels unfair on two fronts given many pensioners will aim to keep a rainy-day fund in the event of emergency repairs or a large, unexpected cost. It is the equivalent of a 10.4% interest rate. Secondly, the limit has not moved since 2009 and it is likely therefore that more and more people are seeing their benefit income reduced as they fall into this bracket."
Eligibility and Important Exceptions
Pension Credit is available to state pensioners with a weekly income below approximately £227. While there is no official upper savings limit that disqualifies you from claiming, the benefit amount is directly impacted by capital over £10,000.
Charity Age UK notes that some older pensioners might also be eligible for an extra element called Savings Credit. They confirm: "There isn’t a savings limit for Pension Credit. However, if you have over £10,000 in savings, this will affect how much you receive."
It is also important for claimants to know that they can continue to receive Pension Credit if they leave Great Britain for short periods, such as a holiday of up to four weeks. This ensures pensioners are not unfairly penalised for taking a well-deserved break.
The warning underscores the complex interaction between savings and state support, urging all eligible pensioners to check their entitlement carefully, as thousands miss out on this important financial boost each year.
