Select Committee on Work and Pensions Minutes of Evidence

Supplementary memorandum submitted by Age Concern England (PC 10A)


  Age Concern while welcoming the extra money that the Pension Credit will bring many older people, continues to believe that we do not yet have a clear pension strategy that will ensure an adequate income for today's and tomorrow's pensioners. Among younger people there is much concern and confusion about pensions and the Pension Credit is likely to add to the complexity while doing little to address the lack of confidence in current systems. However in the context of the current proposals the information in this paper makes specific points adding to the written and oral evidence that Age Concern has already given to the Committee.


  Organisations giving evidence on 27 February, including representatives from the ABI expressed concern that people aged 60-64 will not benefit from the savings credit. This, as we said in our written evidence, will lead to disappointment particularly among women in this age group who, having reached pension age, will assume they will be able to benefit from extra help aimed at pensioners.

  However we would also like to emphasise the need for an equal age of 60 (rising as women's pension age increases) for the 2 elements of the Pension Credit in order to reduce complexity. We have expressed concern about the take-up rates for this new and complicated benefit. However the problem of publicising and promoting Pension Credit will be far harder if one of the messages that will have to be relayed is that the type of support will vary according to whether someone is under or over the age of 65.


  As the Committee is aware, Age Concern and other organisations have recommended that the level of assumed income from savings should be 5 per cent and not 10 per cent as proposed. This would mean that the assumed income rates for savings over £6,000 would more accurately reflect actual income from savings. It would also address our concern that some people those with around £12,000 savings or more would actually be worse off than under the original proposals to assess actual income. An alternative approach is to raise the capital limit from £6,000. For example in the House of Lords Baroness Greengross put forward an amendment that would have raised the limit to £11,500 in line with the current level of savings ignored for local authority charging procedures. This has the advantage of aligning different means-tested/charging systems as well as reducing the numbers of older people receiving Pension Credit who would have savings that would need to be assessed (12 February 2002, House of Lords, Official Report, column 1051).


  At the Committee Age Concern referred to levels of marginal deduction rates (Questions 72-75). The following table gives some (but not all) of the different marginal rates that older people will face because of the interaction between the Pension Credit, income tax, Housing Benefit (HB), and Council Tax Benefit (CTB). For example from the table it can be seen that if someone pays basic rate tax of 22 per cent and is also entitled to the savings credit, Housing Benefit and Council Tax Benefit, they will have a marginal deduction rate of 93 per cent and therefore if their income increases by £1 they would be only 7p better off.

  The table gives an indication of the complexity of the systems and also shows that in many situations people will face marginal withdrawal rates of well over 40 per cent. High marginal rates will mean that older people with certain income levels will feel they are little better off from having made additional savings.

  Younger people considering their retirement provision may decide that even if they are better off from having saved, they may not be sufficiently better off to make saving worthwhile.

Income less than basic pension 100%

22% income tax rate, savings credit, HB/CTB
10% income tax rate, savings credit, HB/CTB 92%
savings credit, HB/CTB91%

22% income tax, savings credit, CTB
10% income tax, savings credit, CTB57%
savings credit, CTB52%

22% income tax and savings credit
10% income tax and savings credit46%
savings credit alone40%


basic tax
starting rate tax10%


  The issue of the planned phasing in of ACT between 2003 and 2005, as the way of paying pensions and benefits for most people, was raised in the evidence session as another major change for the Department for Work and Pensions coinciding with the introduction of the Pension Credit (Q60). This is an important issue for older people both in terms of receiving their State Pension and benefits in the most convenient manner and also because of the need to maintain the post office network which provides a vital service. Age Concern has already argued that the ACT changes should be delayed in order to give post offices time to set up new services that will compensate them for loss of income. We also believe that a delay is important to ensure that the DWP does not have to deal with a major change to payment methods over the same period of time that the Pension Credit and the new Pension Service are being introduced. We recommend that changes to ACT are not introduced until the Pension Credit has been operating successfully for some time.

March 2002

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