Burying bad news has a long and dishonourable political history.  Choosing a day when the news is dominated by a major, and ideally tragic, story may take the focus of attention well away from other ‘difficult’ stories.  The government seem to have continued this tradition by releasing the news of a major blow to pensioner couples on the evening before the Brexit vote on January 14th.

Many pensioners will have to wait much longer before being able to get Pension Credit, the main means-tested benefit for older people.  The rules about age have changed again.

When are you old?

It’s been taking longer, for years now, to get old in benefit terms.

You used to be able to get Pension Credit when you, or the oldest person in a couple, reached 60. That was because it was the age when women could get their state pension. As the state pension age increased, in order to equalise men and women’s qualifying age to 65, the Pension Credit (PC) age increased in line, and will continue to as the state pension age (SPA) goes up, increasing to 66 by October 2020, and 67 by 2028.

The government has also accepted the findings of the Cridland review, which recommended that the pension age should rise further – to 68 – by 2039

But for couples it was always the age of the oldest person that mattered.

No more! From 15th May  it will be the age of the youngest that counts.

What does that mean?

Where there are ‘mixed age couples’, with one partner above SPA and one below, then they will be dependent upon Universal Credit  as they  won’t be able to claim Pension Credit until the youngest person reaches SPA.

This will have a particularly severe impact on couples where there is a considerable age difference between the two people. They will spend much longer on the lower working age rates, if they are dependent upon means tested benefits.  Benefit rates for older people can be over twice the rate of those paid to people of working age.

The couple rate of the working age benefit is much lower than even the single rate of the older person’s benefit – £114.81 a week for a couple getting Universal Credit (UC) compared to £167.25 for a single person receiving Guarantee Pension Credit, from April 2019.  For couples getting PC the difference is bigger, £255.25 a week is more than double the UC rate.

It is worth remembering that UC like other working age benefits has been frozen since 2016 while PC has increased, in order to protect older people.

The devil in the detail

But it’s more than just the basic amounts of benefit that will cause problems. Here are just a few examples

Retirement

It is likely that an older partner may retire before the other person reaches pension age. That’s a natural consequence of being older.

The benefit consequences aren’t quite so natural.

The older person is likely to have some pension savings. The consequences of an older partner wanting or needing to make use of their pension savings, while the age of the younger partner makes them subject to the rules and rates of working age benefits, may be particularly severe.

Many people have small pension pots and this means that they may well be entitled to welfare benefits even after taking income or capital from the pot. For many of them the amount of income or an annuity that they could take would not be enough to end their entitlement to PC but will stop their entitlement to UC. Not taking their pension may not be an option; untaken pensions have no effect on those below SPA but will count for older partners.

The situation of an older partner wanting or needing to make use of their pension savings while the age of the younger partner makes them subject to the rules and rates of working age benefits may be particularly severe.

Capital and savings

Capital matters in a couple of different ways in benefits. Neither UC nor PC actually care about income received from capital, whether that’s interest on savings, dividends from shares or even rent from property. Instead they have notional interest rules, at a very high notional level of interest.

The imaginary income is used as part of the means test for the benefits. The way it’s calculated is much more severe in UC than in PC.

In UC, if the claimant has capital in above £6000 notional ‘tariff income’ is calculated on any amount over that.

Every £250.00 of excess capital will generate £1.00 per week of tariff income. Any fractional amounts of £250.00 will also generate income of £1.00.

E.g: Mr Smith has £6700 in the building society. His tariff income will be £3.00 per week. £1.00 for each £250.00 in excess of £6000 up to £6500 and £1.00 for the £200.00 from £6500 to £6700.

For Pension Credit the starting point is £10,000 and the rules assume £1 for each £500 of excess income.  So no notional Income for Mr Smith.

The difference a substantial; Mrs Khan with £15,999 in an ISA would have a notional income of £12 a week under PC rules but £40 a week under the UC rules.

Capital Cut-Off in Universal Credit and Pension Credit

Capital below £6000 is ignored for UC but if it’s over £16,000 then benefit will not be paid.

Zero.  Zilch. No entitlement.

There is no capital cut-off in PC. With high levels of capital the notional income rule will, in due course, stop PC as part of the usual means test but it is not uncommon to see people with fairly high levels of saving still being entitled to the benefit.

That means, for example, an older partner retiring with a small pension pot, which might be better taken as a lump sum, will be disadvantaged substantially when on UC.

Pension income & younger partners

Pension income will be more likely to stop entitlement to Universal Credit as that benefit will be paid at a lower rate than Pension Credit.  That means that ‘Passporting’, qualifying for other help by receipt of a benefit, may be lost for both partners.

Planning for the future

If we consider a man who is three years older than his non-working partner and who retires at exactly his state pension age, some of the practical issues can be seen.

As his earnings stop, his income is likely to drop substantially even if he is able to take an occupational pension at that time.  This makes it likely that benefits will be claimed and, now, that will be UC.  After three years (or slightly more as SPA will have increased) Pension Credit entitlement will start as the partner reaches SPA.

There will be a common cycle, where income drops on stopping work and moving on to UC followed by, after a period, an increase in income when the couple qualify for PC. Understanding this situation, and the amounts involved, will be vital for budgeting and in particular for creditors who will need to consider what options are available to cover the period with less support.

Work Incentives and Younger Partners

From now until May 15th, if the younger partner is currently working, and thus their income is too high for PC, then it may make sense to stop, or reduce, work and claim Pension Credit now. This will avoid not being entitled later.

If they are already getting Pension Credit  then there is an element of danger when starting work, coming off Pension Credit  and being put on Universal Credit if the employment stops for any reason.

Changing relationships

Whatever the government hopes, people live in an environment of constant change. Relationships form, and and go through periods of temporary adjustment. A single person getting Pension Credit who forms a relationship with a younger person and thus becomes part of a mixed-age couple will lose their entitlement to Pension Credit and they will have to claim Universal Credit as a couple. If they were to separate again, even if they remain living in the same home but as separate households, then they would see their total incomes increase substantially as a single person’s PC and a single person’s UC is much more than a couple’s UC. It would be surprising if the DWP didn’t have to make substantial numbers of assessments about the genuineness of relationship breakdowns.

Other

There are a number of complex situations which will arise and which may require rule changes in other areas where PC passports or gives special treatment but UC doesn’t.

There will be particularly complex situations where social care is involved.

Take-up

There are very many older people who do not receive the benefits to which they are entitled.
• About a third of pensioner households entitled to Pension Credit don’t claim it
• Over half of home owners entitled to Pension Credit don’t claim it
• Over half of all those entitled to Savings Pension Credit don’t claim it

A lot of these people, currently entitled, may have younger partners. The next four months will be their only opportunity to gain the benefits they may be entitled to, quite possibly substantial, for many, many years.

Help them.