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Reform Pension Credit and Council Tax Benefit savings rules

Comment 5th July 2010

Reform of the unfair savings rules for Pension Credit and Council Tax Benefit claims is seriously overdue.

The Tax Credits system is based on actual income from savings. However, Pension Credit and Council Tax Benefit have different rules for the treatment of capital, so that the measure of income from capital is notional rather than real. These rules are based on social security law and are not made by local authorities.

Most capital is counted, even that held in tax-free accounts, and the rule can put those who have saved in cash, rather than through a pension fund, at a distinct disadvantage in their pension credit claim.

Although there is a £10,000 capital disregard, income from remaining capital is deemed to be at £1 per week for every £500 of capital, (referred to as ‘assumed income’), and this applies regardless of whether you are single or in a couple (that is, the capital disregard for a couple is £10,000 not £20,000).

This notional interest rate of over 10% on savings gives pensioners an assumed income figure which is very much higher than their real income from the cash deposits, whether-tax free or not, especially during the current period of very low interest rates.

Legislation is badly needed to abolish the "assumed income" rules and align Pension Credit and Council Tax Benefit savings rules with the fairer "actual income" rules used by the Tax Credits system.


Why does this matter?

Pensioners should be as fairly treated as anyone else in the benefits system.

The Pension Credit and Council Tax Benefit systems are operating unjustly against pensioners with savings as long as these "assumed income" rules remain in force; neither are these systems fulfilling the purpose for which they were set up, namely relieving pensioner poverty.

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