State Pension Credit: What happens to your credits when you start drawing your pension?
Pension Credit is a tax-free means-tested benefit for retired persons on low incomes. In the current economic climate, every penny counts more than ever. But could your pension credit be affected when you begin drawing your State Pension?
What is Pension Credit?
Pension Credit provides an additional retirement income if you are on a low income.
It is made up of two parts: Guarantee Credit and Savings Credit.
For the 2020/2021 tax year, Guarantee Credit can see your weekly income topped up by £173.75 a week if you are single or £265.20 if you are married or in a civil partnership.
Savings Credit could provide single persons with an additional £13.97 a week or married couples and civil partners with an additional £15.62 a week.
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According to the Government, more than three million households are eligible for pension credit.
But four out of 10 fail to claim the benefit because in many cases because they do not realise they are entitled to it.
Government figures suggest the average weekly pension credit amount received by claimants is £58, which equates to more than £3,000 a year.
What is the State Pension?
State Pension is a regular payment made by the Government to those who have reached State Pension age of 65 currently.
It is funded from National Insurance (NI) contributions and the amount you get is contingent on your own NI contributions.
State Pension amounts rose in April meaning millions of people are now taking home more money.
The full basic State Pension is £134.25 per week while the full new State Pension is £175.20.
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How is Pension Credit impacted by State Pension?
Normally you become ineligible for Savings Credit if you reach State Pension age on or after April 6, 2016.
The concept of pension credit is to ensure a household’s income reaches the minimum level.
For 2020/2021 the target level is £173.75 and for a couple, it is £265.20.
Only people who reached State Pension age before April 6, 2016 are eligible to claim the Savings Credit part of Pension Credit.
Savings Credit provides some extra money if you have made some provision towards your retirement by saving, or with a pension other than the basic State Pension.
To qualify for pension you must:
Live in the UK – England, Scotland, Wales, or Northern Ireland
Have reached state pension age (currently rising from 65 to 66 for both men and women in October).
Fundamentally, Pension Credit is designed to be a “top up” to one’s income in addition to other sources of income you have.
If your total income from earnings and your pension is short of this target amount you will be entitled to a top up payment to bring up your total income to that level.
This means when you begin drawing your State Pension, you may receive an equivalent reduction in your Pension Credit income.
Some sources of income are disregarded when calculating your Pension Credit amount, including Attendance Allowance.
The first £5 per week of any earnings is also ignored.
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