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Non-contributory state pensions and benefits taken from the Pension Act of 2008

The non-contributory (income-related) Pension Credit was introduced in October 2003 to replace the Minimum Income Guarantee (MIG) for those aged 60 and over, which had been in place since April 1999.

Pension Credit is made up of two elements: a guarantee credit element which is designed to provide a minimum level of income for pensioners, and a savings credit element, intended to provide an additional amount for pensioners with low or modest incomes in addition to the BSP and to encourage saving.

The age for starting to receive guarantee credit is linked to women’s State Pension Age (SPA), currently 60; savings credit is for those aged 65 and over.

In 2009/10, the standard guarantee credit level was £130.00 per week for a single person and £198.45 per week for a couple (two people living together).

These amounts are known as the Standard Minimum Guarantee because they aim to ensure that all pensioners have at least this minimum level of income.

In addition to the Standard Minimum Guarantee, a carer may get an extra £29.50 per week and a disabled person may receive an extra £52.85 per week.

Help with mortgage interest payments may also be provided.

Guarantee credit is uprated in line with earnings.

Pension Credit is non-contributory: to claim it, there is no requirement that a person must have made NI contributions.

However, the guarantee credit element is means tested -- in order to qualify, the pensioner’s income is assessed and guarantee credit is paid if income is below a certain level.

This may provide a disincentive to low earners to build up private savings for their retirement, through pensions or other savings vehicles, because if they are assessed for guarantee credit when they retire, income from such savings may count against them.

The Pension Credit system attempts to offset this disincentive effect by including the savings credit element, which rewards people over 65 for their savings with payments of up to £20.40 per week for a single person and £27.03 per week for a couple (2009/10).

Increases to savings credit are approved by Parliament on a year-to-year basis.

In addition to Pension Credit, there are two other important non-contributory (income-related) benefits for pensioners: Housing Benefit and Council Tax Benefit.

These are designed to cover rental and council tax costs, which often represent a large part of the budget of pensioners on low incomes

They are means tested, and pensioners who are in receipt of the guarantee credit element of Pension Credit are entitled to receive Housing Benefit and Council Tax Benefit covering their full rental and council tax costs under the Pension Act 2008.

Statistics show that when the MIG was replaced with Pension Credit in 2003, there was a sharp increase in people aged 60 and over in Great Britain receiving this type of benefit.

There has also been a slight increase in the numbers claiming Council Tax Benefit in the past five years, to 2.5 million in 2007/08, although this represents a fall in the numbers since the early 1990’s, when there were over 3 million claimants.

By contrast, the numbers of people aged 60 and over in receipt of Housing Benefit have declined

steadily since the mid-1990’s, from 1.9 million to 1.5 million in 2007/08.

Pension Act 2008

Pension Credits