For claimants on means tested benefits there is a threshold beyond which savings effect allowance. This begins at £6,000. The maximum allowed is £16,000. Regardless of how much money is actually received, the assumed income from savings is calculated at £1 a week for every £250 (or part thereof) of capital above the £6,000 lower threshold or £2 for anyone on pension credit. This gives a notional interest rate of 20.8% for anyone not entitled to pension credit. When has any bank ever paid an interest rate of 20%? On the upper limit of savings this would give net annual income from interest of £3328 or £64 a week on the full £16,000 or £2080 (£40/week) on the £10,000.
OK there comes a point where savings are of such a level that interest payments go way beyond the benefit entitlement. And the goverment is not in the business of providing a legacy but it doesn't take very long to get through £10,000 at today's prices and they are, in effect, willing to pay in retrospect for the spendthrift's foreign holidays and sky TV channels. Why then punish those who have made the effort?
I know that it isn't that long since the figures were revised but that revision didn't go far enough. There needs to be better correlation between actual and assumed income. The problem of basing the calculation on actual income would come, of course, from the various and variable interest rates available. However, using the basic (or even the highest) rate paid by the National Savings Bank – or even the highest paid by the high street banks (currently 6% for the top ISA) as of the beginning of the financial year, would at least allow those responsible citizens gleen some benefit from their husbandry.
Why does this idea matter?
The government encourages us to save. Some folks do, some don't. Given a change in circumstance those who spent are then rewarded by entitlement to means tested benefits denied to those more frugal with their income. Basic Income Support & Council Tax benefit for a single person come to something in the region of 1/2 to 2/3 of the assumed income from savings. Add to that housing benefit – anything upto and including a 4 figure sum – easily giving a total far in excess of the maximum notional figure. Now tell me the point of ever having put a penny in the bank in the first place, particularly when the current maximum ISA interest rates are actually bringing in about £11 and the similar easy access account £5 per week. For this savers can be denied £100s. Many savers are receiving far, far less than the maximum. This makes anyone who has not frittered away their income on fun and frivolity much worse off than those who have.