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How do savings affect pension credit?

Budgeting for your retirement can be a confusing task. There are so many variables and factors that can make it a daunting prospect to calculate if you will have enough money for the retirement you have envisaged.Budgeting for your retirement can be a confusing task. There are so many variables and factors that can make it a daunting prospect to calculate if you will have enough money for the retirement you have envisaged.

Budgeting for your retirement can be a confusing task. There are so many variables and factors that can make it a daunting prospect to calculate if you will have enough money for the retirement you have envisaged.

One factor that many people forget about is pension credit. Pension credit can boost your pension income during retirement. But what exactly is pension credit? How much is it? And how does it affect you? Here, in this article, we look to answer those questions as well as exploring the fundamental idea of how your savings can minimise the amount of pension credit you receive.

What is pension credit?

Pension credit is an additional payment to individuals who are on a low income. It consists of two parts - a guarantee credit and a savings credit. The guarantee credit works to ensure that people have a minimum weekly income. The savings part is a payment that rewards those who have saved towards their pension so as not to rely solely on the basic State pension we all receive.

How much is pension credit a week?

The savings credit part of the pension credit can be as much as £13.97 a week if you are single, or £15.62 if you are married or in a civil partnership.

The guarantee credit will make up your weekly income to £173.75 or £265.20 if you are married or in a civil partnership. In essence, it guarantees that you will always have an income of either £173.75 or £265.20 during your retirement.

If you have a disability, you are a carer, or you are still paying a mortgage or other housing costs, you may be eligible for more pension credit.

Who is entitled to savings credit and guarantee credit?

Those who have reached State Pension Age by 6th April 2016 are entitled to both the savings credit and the guarantee credit. If you reach the State Pension Age after the 6th April 2016, you are only entitled to claim the Guarantee part of the pension credit.

Can I get pension credit if I have savings?

While you can get pension credit if you have savings, the amount does decrease depending on how much you have saved up.

More specifically, when the amount you have in savings is above £10,000, your pension credit amount will start to lower. For every £500, or part of £500, you have over £10,000, you will receive £1 less a week. The rationale behind this is that for each £500 or part of £500 you have over £10,000, you are seen as having £1 extra in income a week.

Pension credit is a way of ensuring those with less income always receive a certain amount a week. As a result, the authorities will reduce the benefit if you have other means to cover your day to day costs than from the benefits system.

However, savings are delineated in different ways. It is vital to realise what and how you save can affect your pension credit payments. When means-testing for pension credit, savings are taken into account if they are held in:

  • Cash
  • Bank accounts
  • NS&I accounts
  • Premium Bonds
  • Stocks or shares
  • Any property you own, which is not your primary residence

Assets which are not taken into account are:

  • Pre-paid funeral plans
  • Uncashed life insurance policies
  • Personal possessions (like cars or jewellery)

Savings and pension credit - key takeaways

If you are on a lower income with little else other than the State pension to rely on for your retirement, making the most of pension credit is vital to making the most of your entitlements. To do so, it can be beneficial to structure your savings in such a way so you do not receive less pension credit which is money you may rely on in future.

Importantly, even if you do not manage to receive any more in terms of pension credit, simply looking ahead to your retirement and how you will fund it is a helpful exercise. Listing where your savings are or where your future income may be coming from, will highlight if you have any shortfalls in your retirement budget. Once you have done that, you can look to ways to maximise your future income.

Rachel Lee

Rachel Lee

Having worked at Morgan Stanley and BNYMellon for over 10 years in pensions and investments, Rachel naturally started to move towards investment writing more and more in her day job. Rachel now works as a full-time business and financial writer - drawing from her hands-on experience in the field.
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