STATE PENSION CREDIT BILL

EXPLANATORY AND FINANCIAL MEMORANDUM

INTRODUCTION

1. This Explanatory and Financial Memorandum relates to the State Pension Credit Bill. It has been prepared by the Department for Social Development ("the Department") to assist the reader in understanding the Bill and to help inform debate on it. It does not form part of the Bill and has not been endorsed by the Assembly.
2. The Memorandum needs to be read in conjunction with the Bill. It does not, and is not meant to be, a comprehensive description of the Bill. So where a clause or part of a clause (or Schedule) does not seem to require explanation or comment, none is given.

BACKGROUND AND POLICY OBJECTIVES

3. It is recognised that the pension system was failing to provide enough support and security in retirement to today's pensioners. The Minimum Income Guarantee, along with other measures was introduced to provide more money for the poorest pensioners. The second stage of the strategy was to launch stakeholder pensions and to reform SERPS with the introduction of the State Second Pension from April 2002.
4. The third stage of the reforms is the introduction of State Pension Credit (hereafter referred to as Pension Credit). Pension Credit will be payable to people over 60 whose income falls below a certain level. It will replace income support (Minimum Income Guarantee) for the over 60s as the main form of Government support for people in this age group with low incomes. There are two elements, a guarantee credit and a savings credit. The guarantee part of the credit will provide the new minimum income level below which pensioner incomes should not fall. The savings credit is the reward for saving. It provides a top-up to those pensioners aged 65 and over who have saved for their retirement - for example by putting money aside in a bank or building society, or by saving in a second pension. In addition, it will include simpler administrative arrangements for claimants.

The current position

5. The Minimum Income Guarantee (MIG) arrangements are Income Support for people aged 60 or over, who are not required actively to seek work and whose income is below a certain level. From April 2002, the guaranteed level is £98.15 a week for a single person and £149.80 for a couple. The MIG payment makes up the difference between the guaranteed level and income from other sources, including income from pensions. The MIG level is set higher for carers and those with certain disabilities.
6. As is the case for other categories of Income Support, the amount of MIG payable is affected by people's savings.

• The actual income from savings is not used in calculating income.

• Where savings are in the band £6,000 to £12,000, each £250 of savings in excess of £6,000 is assumed to generate £1 a week of income and this is the amount included in the income calculation. (For those in residential care and nursing homes, the band is £10,000 to £16,000, instead of £6,000 to £12,000.)
• MIG is not available to those who have savings of more than £12,000 (more than £16,000 for those in residential care and nursing homes).

7. Single people and one, but not both, members of a couple can claim MIG. About 75,000 pensioners currently receive payments under MIG.

The new proposal

8. The main purpose of the proposed Bill is to increase the help provided to pensioners in poverty, create a system whereby pensioners benefit from their savings rather than seeing them reduce the level of welfare support they receive, and create a system with less burdensome requirements so as to encourage more pensioners to claim the benefits to which they are entitled.
9. For people aged 65 and over pension credit will be calculated in two stages to produce an award consisting of a basic amount to be known as the guarantee credit and a savings reward to be known as the savings credit. The under 65s will only be eligible for the basic amount. It will be possible for people to receive the savings reward even where they are not entitled to any basic credit. In addition the way capital is taken into account in the assessment of income will be reformed and there will be simpler administrative arrangements for claimants.
10. The key features of the new Pension Credit are:

• The guarantee credit will ensure that pensioners have an income at least equivalent to the guaranteed minimum level. This will be payable to both men and women at or over pensionable age for women. This is currently 60, but is set to rise by stages to 65 between 2010 and 2020. There will be a uniform amount for a single person and a higher uniform amount for married or unmarried couples. There will be an increase to the standard guaranteed minimum where the recipient is severely disabled or the recipient and/or his partner is caring for another person;

• The savings credit will reward those aged 65 and over who have built up a modest income for retirement. This will be paid on top of the basic amount in cases where the claimant has income other than income from state benefits or tax credits. Certain types of income over a set amount, and only income which is taken into account in the assessment of the basic credit will be rewarded. There will be a cash reward of 60 pence for every pound of second pension or savings income up to a maximum of £13.80 a week (£18.60 a week for couples). The Bill also introduces measures to ensure that pensioners with additional premiums for extra costs, and other amounts that exceed the normal appropriate maximum are also rewarded fairly for their savings;
• For everyone aged 60 and over the Bill abolishes the £12,000 upper capital limit. There will be an assumed income for the purposes of assessing entitlement to the basic credit and savings credit. This will be a percentage rate of return on capital that exceeds £6,000. Capital below this amount will not be taken into account in the assessment. For people living in a residential care or nursing home, capital of less than £10,000 will be ignored;
• For those aged 65 and over the only income sources that need to be reported will be income from second pensions and capital. Apart from state benefits no other income sources will be taken into account and no other income sources need to be reported;
• The requirement to report circumstances as they occur will be reformed for everyone aged 65 and over. The Bill introduces an income assessment period which will normally run for five years. During this period there will be no requirement to report changes in income. The changes that require to be reported will include significant life events and changes in the composition of pensioners' households. When these occur the assessed income period will end and entitlement to Pension Credit will be reassessed.

The position of those claiming Housing Benefit

11. Regulations will provide that pensioners who receive the guarantee credit will automatically qualify for maximum Housing Benefit. Those who receive savings credit only, or who are not entitled to Pension Credit, will claim Housing Benefit under new rules which will, in the main, reflect those in Pension Credit. However, the applicable amount in Housing Benefit for pensioners aged 65 and over will be increased by the maximum savings credit to ensure that they receive the full benefit of any savings credit entitlement.

Pension Credit - legal framework

12. Pension Credit follows the pattern of benefits provided under the Social Security Contributions and Benefits (Northern Ireland) Act 1992 and the Jobseekers (Northern Ireland) Order 1995 and fits within the Social Security Administration (Northern Ireland) Act 1992 and the Social Security (Northern Ireland) Order 1998. In particular:

• it will be administered by the Department for Social Development;

• entitlement will be decided by decision-makers acting on behalf of the Department;
• decisions on entitlement and the assessed income period will be subject to an appeal tribunal and beyond that, on a point of law, to the Social Security Commissioners and the courts.

Equal Treatment for Widows and Widowers

13. This measure is consequential on the introduction of the new Bereavement Benefits by Articles 51 to 53 of the Welfare Reform and Pensions (Northern Ireland) Order 1999. With the introduction of Bereavement Benefits, a widower can inherit SERPS from his wife if he is entitled to Widowed Parents Allowance. In addition, a widower reaching state pension age who has previously been entitled to Widowed Parents Allowance or Bereavement Allowance may inherit SERPS from his wife. However, where the wife had been a member of a contracted-out pension scheme and the widower is receiving widower's pension from that scheme there is currently no power to make a contracted-out deduction. As a result there is currently double provision for certain widowers, which means that some widowers are being treated more advantageously to widows in the same circumstances.
14. The Bill amends the Pension Schemes (Northern Ireland) Act 1993 in order to provide for a contracted-out deduction in cases where a widower would otherwise be entitled to inherit SERPS from his late wife as well as a widower's pension from her contracted-out pension scheme. This will ensure that widows and widowers are treated equally in this respect.

CONSULTATION

15. The Government's proposals for Pension Credit were initially outlined in "The Pension Credit: a consultation paper (Cm 4900)". The consultation document was published in November 2000. The consultation was on a UK-wide basis as the document also dealt with tax issues which are excepted matters under the Northern Ireland Act 1998.

OVERVIEW

16. There are 21 clauses and 3 Schedules in the Bill. It makes amendments to:

• the Administration Act; and

• the 1998 Order.

It also makes minor and consequential amendments to the Contributions and Benefits Act.

The glossary of terms used is in Annex A to these notes.

COMMENTARY ON CLAUSES

Clauses 1 to 4: Entitlement and amount

Clause 1: Entitlement

Clause 1 provides for a new social security benefit called Pension Credit to be payable in accordance with the Bill (subsection (1)).

Pension Credit consists of two elements, known as "guarantee credit" and "savings credit". A claimant may be entitled to either or both of those elements (subsection (3)).

The purpose of the guarantee credit is to ensure that the claimant has income equal to at least the amount of the "standard minimum guarantee" which, in 2003, is expected to be around £100 for a person who is not a member of a couple (a "single person") and £154 for a married or unmarried couple (a "couple").

The purpose of the savings credit is to provide claimants with a reward for having made some modest provision for retirement above the basic state pension.

The guarantee credit and the savings credit each have conditions of entitlement, but two of the conditions are common to both.

The first of the common conditions is that the claimant must be in Northern Ireland (subsection (2)(a)). That condition is the subject of two regulation-making powers set out in subsection (5).

Subsection (5)(a) confers power to make provision by regulations as to the circumstances in which a person is to be treated as being in Northern Ireland. The intention is to exercise the power so that the claimant has to be habitually resident in Northern Ireland if he is to qualify, which is currently the position with Income Support and income-based Jobseeker's Allowance.

Subsection (5)(b) confers power to make provision by regulations for continuing a person's entitlement to Pension Credit during periods of temporary absence from Northern Ireland. The intention is to continue the current Income Support rules which allow for entitlement to continue for four, and exceptionally eight, week periods abroad.

The second of the common conditions is that the claimant must have attained the "qualifying age" for Pension Credit (subsection (2)(b)).

The "qualifying age" is defined in subsection (6) (as read with the definition of "pensionable age" in clause 17(1)) so that it means, for both men and women, the age which is pensionable age for a woman. That age is currently 60, but between 2010 and 2020 will steadily rise until it reaches 65, the same as pensionable age for a man. The legislation effecting the equalisation of the pensionable ages for men and women is in Part 1 of Schedule 2 to the Pensions (Northern Ireland) Order 1995.

In addition to the two common conditions, the claimant must satisfy the further conditions set out in clause 2(1) for the guarantee credit or clause 3(1) and (2) for the savings credit.

Subsection (3) provides for the amount to which the successful claimant is entitled to be found in accordance with clause 2 for the guarantee credit (paragraph (a)) and clause 3 for the savings credit (paragraph (b)).

Clause 2: Guarantee credit

The claimant is entitled to the guarantee credit if (in addition to satisfying the two common conditions described above in connection with clause 1) he also satisfies the condition in subsection (1), which requires the claimant's "income" not to be above an amount referred to as "the appropriate minimum guarantee".

Subsection (2) provides that the amount of the guarantee credit is the amount of the appropriate minimum guarantee less any relevant income.

The meaning of "income" for the purposes of the Bill is defined by clauses 15 and 16, while clause 5 provides that where the claimant is a member of a couple, the income of the other member is to be treated as income of the claimant for the purposes of the Bill (and so in effect provides for the aggregation of their income).

The "appropriate minimum guarantee" consists of two parts (subsection (3):

(a) the standard minimum guarantee; and,

(b) various prescribed amounts whose applicability in the case of each claimant is determined by reference to the particular circumstances of the claimant.

Subsection (4) provides that the amount of the standard minimum guarantee will be prescribed by regulations and subsection (5) requires there to be one uniform standard minimum guarantee for a single person (expected to be around £100 in 2003) and one for a couple (expected to be around £154 in 2003).

Subsection (6) enables the Department to make regulations substituting a reference to a prescribed amount for the reference to the standard minimum guarantee in subsection (3)(a) in prescribed cases.

Where the power is exercised, the prescribed amount does not for any purpose become the standard minimum guarantee, but simply replaces the reference to it in subsection (3)(a), subsequently that provision effectively reads, for example, "£10" instead of "the standard minimum guarantee".

Accordingly, such a substitution does not affect the amount of the claimant's standard minimum guarantee for other purposes of the Bill (such as determining the "maximum savings credit" under clause 3(7)), but the standard minimum guarantee will not be brought into account for the purpose of determining the claimant's appropriate minimum guarantee (the substituted prescribed amount being brought into account instead).

It is intended that the power conferred by subsection (6) will be exercised, for example, in cases where the claimant or, if the claimant is a member of a couple, the other member of the couple remains in hospital for longer than thirteen weeks.

It is also intended that the power, as read with the power conferred by subsection (9) to prescribe nil as an amount, will be exercised to substitute "nil" for the reference to the standard minimum guarantee in subsection (3)(a) in cases corresponding to those in paragraphs 7 and 8 of Schedule 7 to the Income Support (General) Regulations 1987 where a nil amount is prescribed. That Schedule prevents prisoners, and members of religious orders who are fully maintained by their orders, from receiving Income Support.

The power to prescribe "additional amounts" under subsection (3)(b) enables the Department to make provision for the appropriate minimum guarantee to be greater than the standard minimum guarantee.

Where, for example, the claimant is an owner-occupier with housing costs, it is intended that additional amounts will be prescribed in respect of those costs, such as mortgage interest, ground rent or service charges.

It is also intended that this power will be used to prescribe an amount additional to the standard guaranteed minimum where, immediately before qualifying for Pension Credit, the recipient was receiving Income Support or Jobseeker's Allowance which included an element of transitional protection. The increase will be included if, without it, the guarantee credit would not maintain, or improve, their previous level of income. The power will also allow for other additions to be made in future without the need for further primary legislation.

It is not intended that additional amounts should be prescribed in respect of children, as benefits for children are to become part of the new Child Tax Credit under the Tax Credits Bill.

The clause requires the power to prescribe additional amounts under subsection (3)(b) to be exercised in two particular cases.

The first of these cases, addressed by subsection (7), is where the claimant is severely disabled. The circumstances in which a person is to be regarded as being or not being "severely disabled" will be the subject of regulations under clause 17(2)(b).

In such cases the intention is that there will be a prescribed additional amount corresponding to the severe disability premium in Income Support. It is expected that in 2003 this will be around £43.45 for a single person and £86.90 for a couple.

The intention is that the rules will be the same as those for the receipt of the severe disability premium in Income Support.

In the case of a claimant who is a single person, those rules are that:

• the claimant must be in receipt of the care component of Disability Living Allowance at the highest or middle rate, or Attendance Allowance at either rate;

• there must be no non-dependants aged 18 or over living with the claimant; and,
• there must be no one receiving Invalid Care Allowance (to be re-named "Carer's Allowance" - see below) for looking after the claimant.

In the case of a claimant who is a member of a couple, the higher rate mentioned above can be paid if:

• both members are in receipt of Disability Living Allowance, or Attendance Allowance;

• they have no non-dependants living with them; and,
• no one is receiving Invalid Care Allowance (to be re-named "Carer's Allowance" - see below) for looking after either of them.

The second case where an additional amount must be prescribed under subsection (3)(b) is addressed by subsection (8) and is the case where the claimant is entitled, or is a member of a couple the other member of which is entitled, to an allowance under section 70 of the Contributions and Benefits Act (allowances for caring for another person). The allowance in question is currently Invalid Care Allowance but the Deregulation (Carer's Allowance) Order (NI) which will be made when the Social Security Bill which is also being introduced in this session of the Assembly, makes an amendment, amongst other things, to rename the benefit as "Carer's Allowance".

The intention is that the additional amount in such a case will correspond to the carer premium in Income Support. It is expected that in 2003 the amount will be around £25.35.

Subsection (9) confers power to prescribe nil as an amount. This power cannot be used to prescribe nil as the standard minimum guarantee, but in combination with the power conferred by subsection (6), it can be used to prescribe nil as the amount that replaces the reference to the standard minimum guarantee in subsection (3)(a).

Clause 3: Savings credit

Clause 3 specifies the conditions that must be satisfied (in addition to the two "common conditions" described in connection with clause 1) if the claimant is to be entitled to savings credit (subsections (1) and (2)). It then goes on to explain the calculation for determining the amount of savings credit to which a claimant is entitled (subsections (3) and (4)).

The condition of entitlement in subsection (1) is that the claimant has attained the age of 65 or is a member of a couple the other member of which has attained the age of 65.

The condition in subsection (2) has two parts, each concerned with aspects of the claimant's income.

The first part (paragraph (a)) requires that the claimant has what is referred to as "qualifying income" of an amount that exceeds a figure referred to as "the savings credit threshold".

"Qualifying income" is addressed by subsection (6), which confers power to make provision by regulations as to income which will be "qualifying income". The intention is that the claimant's "qualifying income" will, broadly, be those parts of the claimant's income which arise from:

• contributing to the National Insurance system (for example, a Category A or Category B retirement pension, including additional pension);

• the claimant's own retirement provision (for example, an occupational or personal pension, or income from capital);
• earnings.

The "savings credit threshold" is a prescribed amount (see the definition in subsection (7)). The amount prescribed is expected to be around £77 in 2003 for a single person and £123 in the case of a couple.

Savings credit is, however, to be subject to a maximum entitlement, referred to as "the maximum savings credit" (defined in subsection (7)), which is a prescribed percentage (the intention is that it will be 60 per cent) of the difference between:

(a) the standard minimum guarantee (discussed in the Notes on clause 2); and

(b) the savings credit threshold.

The maximum savings credit is therefore expected to be around:

• £13.80 in the case of a single person (60 per cent of the difference between £100 and £77); and,

• £18.60 in the case of a couple (60 per cent of the difference between £154 and £123).

If the claimant has income in excess of the appropriate minimum guarantee, the savings credit will be adjusted by deducting a prescribed percentage (the intention is that it will be 40 per cent) of the amount by which the claimant's income exceeds the appropriate minimum guarantee.

The effect, based on estimations for 2003, is that normally the savings credit is reduced to nil in the case of a single person if the claimant's income is £135 or more and in the case of a couple if the claimant's income is £201 or more.

The second part of the condition of entitlement in subsection (2) (paragraph (b)) reflects the provision for reducing the amount of savings credit in circumstances where the claimant has income in excess of the appropriate minimum guarantee. The clause provides that there is no entitlement to savings credit where the claimant's income is such that the adjustment has the effect of reducing the savings credit to such an extent that none is payable. The same calculation therefore serves to determine both entitlement to, and the amount of, savings credit.

Subsections (2)(b) and (3) together produce the above results by providing that the amount of the savings credit to which a claimant is entitled is the amount by which "amount A" exceeds "amount B" (subsection (3)) and that there must be such an excess if the claimant is to be entitled to savings credit (subsection (2)(b)). The claimant is not entitled to savings credit unless amount A exceeds amount B.

Amount A and amount B are defined in subsection (4), but to find their amount involves some further calculation. The following amounts (all of which have been described either in the Notes on clause 2 or in the preceding Notes on this clause) must be found in the case of the claimant:

(1) the amount of the "income";

(2) the amount of that income which is "qualifying income";

(3) the "appropriate minimum guarantee";

(4) the "standard minimum guarantee";

(5) the "savings credit threshold"; and,

(6) the "maximum savings credit".

From those amounts two further amounts that need to be known can be calculated:

(7) a prescribed percentage (expected to be 60 per cent) of the amount by which:

(a) the qualifying income,

exceeds

(b) the savings credit threshold, and

(8) a prescribed percentage (expected to be 40 per cent) of the amount (if any) by which:

(a) the claimant's income,

exceeds

(b) the appropriate minimum guarantee.

Subsection (4) defines "amount A" and "amount B".

Amount A will always be amount (7), unless that amount exceeds the maximum savings credit, in which case amount A will be the maximum savings credit.

Amount B will be amount (8) in any case where the claimant's income exceeds the appropriate minimum guarantee. In any other case, amount B will be nil (and the amount of savings credit to which the claimant is entitled will accordingly be amount A without any reduction).

Clause 2(6) makes provision for a prescribed amount to be substituted for the reference to the standard minimum guarantee in clause 2(3)(a). Where that happens, the claimant's appropriate minimum guarantee will normally be less than if it included the standard minimum guarantee instead of the prescribed amount substituted for it.

That has consequences for the calculation of amount B. Where the appropriate minimum guarantee is replaced by virtue of clause 2(6), a smaller amount of income will be sufficient to exceed the appropriate minimum guarantee and bring the adjusted amount B into operation.

It is not, however, intended that, simply because of the application of regulations under clause 2(6), the claimant's savings credit should necessarily be subject to that extra degree of adjustment in all cases where those regulations apply, so subsection (5) confers power by regulations to substitute for the appropriate minimum guarantee a prescribed higher amount, but only for the purpose of finding the amount (8) described above.

The effect of such a substitution is that the amount (8) described above, and accordingly amount B, will be less than it would otherwise be, or will become nil, and so a smaller amount B falls to be set against amount A.

Subsection (8) confers the power to prescribe nil as an amount.

Subsection (8) will be exercised to substitute "nil" for the reference to the maximum savings credit in cases corresponding to those in paragraphs 7 and 8 in Schedule 7 to the Income Support (General) Regulations 1987 where a nil amount is prescribed. That Schedule prevents prisoners, and members of religious orders who are fully maintained by their orders, from receiving Income Support. See also paragraph on clause 2(9) above.

Annex B to these Notes contains worked examples of the operation of the rules for determining the amount of a claimant's savings credit.

Clause 4: Exclusions

Clause 4(1) provides that Pension Credit shall not be payable to or for a person who is a member of a married or unmarried couple if the other member is entitled to Pension Credit. The intention here is simply to prevent double provision from public funds.

Subsection (2) provides that someone who is subject to immigration control within the meaning of section 115 of the Immigration and Asylum Act 1999 will have no entitlement to Pension Credit.

Subsection (3) carries forward into Pension Credit the power in section 130(3) of the Contributions and Benefits Act. The intention is that Pension Credit is not to be paid if entitlement is under ten pence a week, unless payment can be combined with payment of another benefit.

Aggregation

Clause 5: Income and capital of claimant, spouse etc.

Clause 5 provides that any income or capital of the claimant's partner, whether or not they are married, is treated as the income or capital of the claimant for the purposes of the Pension Credit income assessment. This includes the assessment of the guarantee credit (at clause 2) and the savings credit (at clause 3). In effect, this means that the income of a couple, whether married or unmarried, is added together for the purposes of calculating how much Pension Credit they will receive.

This will be the case except in circumstances to be prescribed by the Department in regulations. There are no immediate plans to use this power to make regulations. A corresponding power exists in relation to Income Support and is replicated here in order to provide sufficient flexibility for the future. If this power were to be used, the effect of not aggregating a couple's income or capital would be to disregard totally the income or capital of the claimant's partner.

Clauses 6 to 10: Retirement provision

The social security system requires claimants to notify changes that affect their benefit entitlement. In the case of Pension Credit, this would include any change in income that is taken into account when calculating the rate of Pension Credit. Clauses 6 to 10 provide for certain types of income (a person's "retirement provision") to be treated as remaining the same for a period of up to five years ("the assessed income period"). This is subject to routine adjustment for inflation. The effect of this provision is that increases in income do not affect Pension Credit entitlement and therefore do not have to be reported by the claimant during that period. However this does not prevent an increase in the rate of Pension Credit where a person's actual retirement provision is reduced.

A person's retirement provision is any income from a pension (other than one payable under the Social Security Contributions and Benefits (Northern Ireland) Act 1992 or the Social Security Contributions and Benefits Act 1992), annuity or capital (see clause 6(6)). Income from a particular source is referred to as an "element" of retirement provision.

Clause 6: Duty to specify assessed income period

The system in clauses 6 to 10 can only be used once a claimant attains age 65 or the claimant's spouse or partner attains that age (see subsections (3)(c) and (4)(c)).

If the Department makes a decision on the claimant's entitlement to Pension Credit and Pension Credit is payable, it must specify an assessed income period in relation to the claimant (see subsection (1), (3) and (4) and also the exceptions in subsections (2) and (3)(d) and clause 9(2)). The decision might be the first decision made in relation to the claimant, or it might be a decision revising or superseding an earlier decision (see subsection (3)(b) and Articles 9(1), 10 and 11 of the 1998 Order), including a decision on appeal that Pension Credit is payable (subsections (4) and (5)).

Clause 7: Fixing of claimant's retirement provision for assessed income period

Specifying an assessed income period has the effect of fixing, for that period, what is to be treated as an element of the claimant's retirement provision (see subsection (3)). Further elements of retirement provision acquired later in the assessed income period are simply disregarded (see subsection (5)). The claimant need not, therefore, report such a further element during the period.

Specifying a period also fixes the amount the claimant receives from each element of his retirement provision (the "assessed amount"), but those assessed amounts are liable to be adjusted in accordance with regulations (see subsections (3) and (4)). The intention is that the regulations will provide for the amount of income from a pension or annuity to be deemed to increase from time to time in line with the terms of a claimant's pension or annuity arrangements and for the rate of return on capital to be treated as adjusted from time to time. In some cases, the assessed amount may be deemed to stay the same.

The amounts a claimant is deemed to receive and the amounts actually received may differ. If that works in the claimant's favour, he need not report it during the period. The point of subsection (3) is that a calculation based on deemed amounts does not give rise to an overpayment. If the difference works against the claimant, he may seek a new decision on the amount of his entitlement (see clause 8(1)(a)).

None of the powers in the Bill will affect the powers in Article 10 of the 1998 Order which allow the revision of a decision.

Clause 8: Fresh determination increasing claimant's entitlement

Where the initial decision is superseded by a decision under Article 11 of the 1998 Order, and that decision increases the claimant's Pension Credit entitlement, the assessed income period can continue. It can also continue where the supersession decision reduces Pension Credit entitlement but the reduction is less than it would have been because the amount of another element of income has also been re-determined (see subsection (2).

Where the assessed income period does not end, the elements of the claimant's retirement provision (other than the element whose change caused the increase in Pension Credit entitlement) continue to be as they were initially fixed and so do their assessed amounts. As for the element whose change caused the increase in Pension Credit entitlement, it is treated for the rest of the assessed income period in the same way as the elements fixed by the initial decision (see subsection (3)).

The result is that if a claimant wants the Department to look again at his Pension Credit entitlement because, for example, part of his retirement provision has gone or yields him less income, subsections (2) and (3) allow the Department to take that change into account without re-examining what the claimant receives from any other part of his retirement provision.

Clause 9: Duration of assessed income period

The Department will not always specify an assessed income period and sometimes it may specify a period of less than five years. This happens if it considers, looking at the claimant's circumstances for the 12 months following the day on which the decision on entitlement takes effect, that the elements of the claimant's retirement provision and their amounts on that day are not likely to be typical. (See subsections (1) and (2)). Foreseeable increases in retirement provision (of the sort dealt with in clause 7(4)) would not be treated as making a claimant's retirement provision atypical (see subsection (3)).

An assessed income period may end prematurely. It will always end, except in prescribed circumstances, if: the claimant marries, divorces or separates or the claimant's spouse or partner dies; or if the claimant is a member of a couple and one of them, who was not 65 when the assessed income period was initially specified, attains that age. (See subsection (4)). It may also end at other times or in other circumstances, to be listed in regulations (subsection (5)). An example would be where the claimant or partner starts work. (The fact that an assessed income period has ended prematurely does not necessarily mean that a person's entitlement to Pension Credit has ceased.)

Clause 10: Effect of variations under section 7(4)

The provision in clause 10 resembles the routine adjustment provisions in sections 139 and 139A of the Administration Act. Unlike those sections, which are open-ended, this provision operates only while an assessed income period is in force (see subsection (1)).

Any adjustment in the assessed amount of a claimant's retirement provision which is made by regulations under clause 7(4) can give rise to an increase or reduction in the claimant's Pension Credit (see subsection (2)). If there is no net effect, a claimant's Pension Credit simply continues at the same amount (see subsection (3)). In any case, there is no need for a new decision by the Department and there is continuity in the claimant's entitlement to Pension Credit.

Clauses 11 to 14: Miscellaneous and supplementary

Clause 11: Administration

Clause 11 introduces Schedule 1, which makes amendments to the Administration Act and the 1998 Order so as to apply, in the case of Pension Credit, the normal social security rules for claims, decisions and appeals.

Clause 12: Polygamous marriages

Clause 12(1) describes, for Pension Credit purposes, the conditions that shall apply in order for a person to be treated as being in a polygamous marriage.

Subsection (2)(a) confers the power for regulations to prescribe the circumstances in which a member of a polygamous marriage is entitled to Pension Credit.

Subsection (2)(b) and (c) confers the power for regulations to prescribe the level of award of Pension Credit, which may include an amount payable in respect of the second and any subsequent spouse.

Subsection (2)(d) provides for the aggregation of income and capital of all members of a polygamous marriage for the purposes of determining entitlement to Pension Credit.

Subsection (3) allows regulations under this Clause to modify the Bill itself.

Clause 13: Transitional provisions

Clause 13(1) confers power to make regulations in connection with the introduction of Pension Credit in 2003.

Clause 13(2) provides that, in particular, regulations may treat people aged 60 and over who are receiving Income Support immediately before the introduction of Pension Credit as having been awarded, or having made a claim for, Pension Credit. This will remove the need for them to make a separate claim and provide continuity in payment. Also, where an assessed income period of five years would otherwise apply to a person who has reached the qualifying age when Pension Credit is introduced, the regulations will allow for a longer period to apply. This is to avoid the operational problems which could otherwise occur in 2008.

Clause 14: Minor and consequential amendments

Clause 14 introduces Schedule 2. The amendments of existing legislation in that Schedule are discussed below.

Clauses 15 to 17: Interpretation of State Pension Credit provisions

Clauses 15 and 16 define what is meant by income for the purposes of the Bill. Clause 15 confers regulation-making powers, which will allow the Department to define how a person's income and capital are to be calculated and attributed for the purpose of determining entitlement to the guarantee credit and the savings credit. Clause 16(1) contains the definition of "retirement pension income". Clause 16(2) confers power to make regulations varying that definition.

Clause 15: Income and capital

In clause 15, subsection (1) defines income for the purposes of the Bill.

• Paragraph (e) includes a regulation-making power which enables the Department to prescribe those social security benefits that are taken into account in the assessment.

• Paragraph (f) enables further regulations to prescribe the foreign social security benefits that are to count as income. The intention is that this will include any social security benefit paid by the government of a country outside the United Kingdom that is analogous to any of those prescribed under paragraph (e).
• Paragraph (g) brings in war disablement pensions and war widow's or widower's pensions (see the definitions of these terms in clause 17(1)), while paragraph (h) brings in their foreign equivalents, paid by governments of countries outside the United Kingdom (again, see the corresponding definitions of these expressions in clause 17(1)).
• Paragraph (j) enables regulations to be made bringing in other descriptions of income. It is intended that this power will be used to cover income streams which few pensioners have, such as employers' sick pay or matrimonial maintenance payments. In the future, the power might be exercised to bring new types of income into account.

Subsection (2) confers power to make regulations to define how capital holdings will be taken into account in calculating Pension Credit. Capital will be deemed to have an assumed rate of return for purposes of assessing entitlement to the guarantee credit and savings credit. The intention is that a ten per cent rate of return will be applied to capital that exceeds £6,000 (£10,000 in cases of people in residential care and nursing homes). Capital below this amount will not be taken into account in the assessment.

Subsections (3) and (4) provide regulation-making powers to prescribe how income and capital will be assessed. The subsections provide that income accrued during any period will be calculated in line with prescribed rules. It is intended that the rules will provide that income may be averaged. In averaging income for fluctuating earnings, for example, the Department may take an average for a past and current period and apply it to a future period.

Subsection (6) confers the power to make regulations prescribing how income and capital will be treated in certain situations. The intention is that regulations will reproduce for Pension Credit the limited income and capital disregards provided for in the Income Support (General) Regulations (Northern Ireland) 1987 (S.R.459) such as that which applies to charity work expenses for example. It is also intended that existing provisions in the Income Support (General) Regulations (Northern Ireland) 1987 concerning deprivation of income and/or capital will be used for Pension Credit. Thus, for example a claimant may be treated as having a notional income from capital no longer in their possession if they have disposed of the capital solely or mainly to secure or increase entitlement to Pension Credit.

Clause 16: Retirement pension income

In clause 16, subsection (2) allows the Department to use regulations to add to, vary or remove the descriptions in the list of retirement pension income in subsection (1). This power provides the Department with the flexibility to change the scope of the scheme where it is appropriate to do so. It will, for example, allow the list of retirement pension income to be amended so that it remains relevant and reflects any future legislative change in pensions and other financial products that provide an income in retirement.

Clause 17: Other interpretation provisions

Clause 17(1) contains definitions of expressions used in the Bill.

Subsection (2) confers the power to prescribe in regulations the circumstances in which persons are to be treated, or are not be treated, (a) as members of the same household or (b) severely disabled. In practice questions whether persons are members of the same household arise in only two cases:

• the determination of whether two people are a "married couple" (see the definition in clause 17(1)); and,

• the determination of whether the conditions in clause 12 (polygamous marriages) are satisfied in any particular case (see subsection (1)(c) of that clause).

Subsection (3) provides for the references to NI or UK to include reference to adjacent territorial waters and the meaning of attaining an age to apply to Pension Credit as they apply to the Contributions and Benefits Act.

Effect of guaranteed minimum pension on social security benefits

Clause 18: Equal treatment for widows and widowers

Clause 18 amends section 43(1) of the Pension Schemes (Northern Ireland) Act 1993, which sets out when section 42(1) of that Act applies to the widower of an earner. Section 42(1) provides for the amount of certain state retirement, widow's and bereavement benefits to be reduced by the amount of any guaranteed minimum pension also received from a private pension scheme.

Paragraph (a) provides for section 42(1) to apply to a widower who receives widowed parent's allowance.

Paragraph (b) provides for section 42(1) to apply to a widower who is entitled to a retirement pension based upon his wife's contributions, or who would be so entitled were it not for the provisions in section 43(1) of the Contributions and Benefits Act. These provisions prevent an individual from receiving more than the full amount of retirement pension available to a single person.

Final provisions

Clause 19: Regulations and orders

Clause 19 contains supplementary provision relating to the regulation and order making powers conferred by the Bill.

Subsection (1) provides that the power to make regulations or an order which may be exercised for alternative purposes may be exercised in relation to the same case for any or all of those purposes.

Subsection (2) provides that the power to make regulations or an order includes power to make incidental, supplemental, consequential or transitional provisions as required. The power also provides for a person to exercise discretion when dealing with any matter.

Subsection (3) provides that the power to make regulations or an order under this Act can include the power to be exercised for any other provision.

Subsection (4) provides for the first regulations made under specified provisions of the Bill to be subject to the approval of the Assembly. This includes regulations that:

• set the amounts to be paid as the guarantee credit (as defined in clause 2);

• set the amount of the standard minimum guarantee (as defined in clause 2);
• define the cases in which a prescribed amount may be substituted for the standard minimum guarantee;
• set the percentage of the excess qualifying income used to calculate the savings credit;
• set the percentage of the excess income used to calculate the savings credit;
• prescribe cases in which a prescribed higher amount may be substituted for the appropriate minimum guarantee when calculating the savings credit;
• define the income which will enable a person to qualify for a savings credit;
• prescribe the amount of the savings credit threshold;
• define the minimum amount payable;
• provide for the treatment of people who are polygamously married;
• provide for the treatment of income and capital in the calculation of Pension Credit.

Subsection (5) provides that any regulations under the Act which are not subject to the Assembly "confirmatory" procedure described in subsection (4) are subject to the Assembly "negative resolution" procedure.

Clause 20 gives effect to Schedule 3, which repeals certain existing legislation as a result of the measures in the Bill.

Clause 21 sets out the title of the Act. Except for clauses 19 and 21 (which relate to commencement and come into operation at Royal Assent), the provisions of the Act come into operation on such day or days as may be appointed by the Department.

Schedules

Schedule 1: Administration

Schedule 1, paragraph 2

Paragraph 2 amends section 1 of the Administration Act to the effect that a person must, in order to establish entitlement to Pension Credit, make a claim for Pension Credit in the manner and within the time specified in regulations made under the Act, and that the claimant (and any other person for whom they are claiming) must have a valid National Insurance number in order to establish a claim. (See also paragraph 3 and the commentary below.)

Schedule 1, paragraph 3

Paragraph 3 amends section 5(2) of the Administration Act to include Pension Credit within the definition of the benefits to which section 5(1) of that Act applies. The effect is to confer the power to:

• prescribe in regulations the manner in which a claim to Pension Credit is to be made;

• prescribe time limits for claiming;
• disallow claims if they have not been made in the prescribed manner and within prescribed time limits;
• enable one person to act for another in relation to a claim;
• require evidence and information in relation to a claim;
• specify the date on which entitlement is to begin and the length of the award; and,
• when the requirements for entitlement are satisfied, for the revision or supersession of an award if the requirements are no longer satisfied.

The effect of the amendment made to section 5 of the Administration Act is that regulations may be made under paragraph (h) or (hh) of subsection (1) of that section requiring a person to provide information enabling a decision to be made on the length of the assessed income period.

Schedule 1, paragraphs 4 to 12

The rules about how entitlement to social security benefits is to be decided, including the way appeals are to be resolved, are in the 1998 Order and related regulations. These paragraphs include Pension Credit in the relevant provisions of the 1998 Order. The effect of this is that the established decision-making and appeal provisions of the Social Security and Child Support (Decisions and Appeals) Regulations (Northern Ireland) 1999 will apply to Pension Credit.

Schedule 1, paragraph 13

The intention in paragraph 13 is to secure that Pension Credit is normally paid at a weekly rate and also, where necessary, to provide the flexibility to make the adjustments necessary to align payment of Pension Credit with other benefits paid to the claimant.

Schedule 2: Minor and consequential amendments

Schedule 2, paragraph 2

The amendments of section 123 of the Contributions and Benefits Act remove entitlement to Income Support for those claimants who have attained the minimum qualifying age for Pension Credit and for those claimants whose partners are entitled to Pension Credit.

Schedule 2, paragraph 3

New section 132A of the Contributions and Benefits Act makes provision for the treatment of income and capital for Housing Benefit where the claimant has attained the qualifying age for Pension Credit.

Subsection (1) applies subsections (2) and (3) to Housing Benefit in the case of any person who has attained the qualifying age for Pension Credit.

Subsection (2) allows the Department to make provision in regulations to disapply for Housing Benefit the provisions of sections 130(1) (exclusion where capital exceeds the prescribed limit), or any provision of section 132 (treatment of income and capital).

Subsection (3) allows the Department to make regulations which provide for the income and capital of a claimant who has attained the qualifying age to be determined for Housing Benefit by applying, with such modifications as he thinks fit, clauses 5 and 15 of this Bill.

Subsection (4)(a) allows regulations under subsection (3) to authorise or require that any calculation or estimate of a claimant's income or capital made by the Department in Pension Credit be used in Housing Benefit.

Subsection (4)(b)(i) allows regulations under subsection (3) to require that where there is an assessed income period in force in Pension Credit, the assessed amount of any retirement provision in Pension Credit shall be used in the determination of the Housing Benefit entitlement.

Subsection (4)(b)(ii) allows regulations under subsection (3) to provide that elements of a claimant's retirement provision which are not taken into account in Pension Credit shall not be taken into account for Housing Benefit.

Subsection (6) allows regulations made under section 132A to include provision for cases to which clause 12 of the Bill applies.

Schedule 2, paragraphs 5 to 7

These paragraphs amend sections 144 to 146 of the Contributions and Benefits Act to make Pension Credit a qualifying benefit for the Christmas Bonus.

Schedule 2, paragraph 9

Paragraph 9 amends section 13A of the Administration Act to give the Department power to make, in prescribed circumstances, direct payments of a prescribed part of any Pension Credit to a mortgage lender in respect of mortgage interest.

Schedule 2, paragraph 10

Paragraph 10 amends section 69 of the Administration Act so that the Department is entitled to recover overpayments of Pension Credit where the overpayment was the result of the claimant's misrepresentation or failure to disclose a material fact.

Schedule 2, paragraph 11

Paragraph 11 amends section 72 of the Administration Act so that the Department is entitled to recover overpayments of Pension Credit where the overpayment resulted from a prescribed payment (usually of social security benefit).

Schedule 2, paragraph 12

Paragraph 12 applies the provisions in Part 6 of the Administration Act (enforcement) to Pension Credit. This causes the provisions on inspection and offences and legal proceedings to apply to Pension Credit.

Schedule 2, paragraph 13

Paragraph 13 amends section 118 of the Administration Act to include Pension Credit in the list of social security benefits for which keepers of registers of births, marriages and deaths are required to provide notification of deaths.

Schedule 2, paragraph 14

Paragraph 14 amends section 119 of the Administration Act to include Pension Credit in the list of social security benefits which give rise to a duty on personal representatives to give information about the estate of a deceased person.

Schedule 2, paragraph 15

Paragraph 15 inserts a new section 139B into the Administration Act. The new section provides for the Department to make a routine adjustment of a person's Pension Credit in consequence of benefit uprating.

Subsections (2) and (3) allow Pension Credit to be paid after the adjustment without the need for the Department to make a further decision on the award.

Subsections (4) and (5) allow an award of Pension Credit made in the period after the uprated amounts have been announced, but before they have been commenced, to take account of the new rates.

Schedule 2, paragraph 16

Paragraph 16 amends section 145 of the Administration Act to exclude from the payment from the National Insurance Fund into the Consolidated Fund the administrative expenses estimated to be incurred in bringing Pension Credit into effect.

Schedule 2, paragraph 17

Paragraph 17 amends section 148 of the Administration Act so that Pension Credit is included in the adjustments between the Social Fund and other sources of finance for the repayment or offsetting of a benefit.

Schedule 2, paragraph 18

Paragraph 18 amends section 149 of the Administration Act to include in the list of relevant enactments those regulations concerning Pension Credit which may be referred to the Social Security Advisory Committee.

Schedule 2, paragraph 19

Paragraph 19 amends section 155 of the Administration Act to include Pension Credit where there is a reciprocal agreement with countries outside the UK but not so far as to confer a right to double benefit.

Schedule 2, paragraph 20

Paragraph 20 amends section 156 of the Administration Act to allow the Department to pay travelling expenses to people required to attend an interview or the social security office in connection with matters relating to Pension Credit.

Schedule 2, paragraph 21

Paragraph 21 amends section 163 of the Administration Act so as to add Pension Credit to the list of social security benefits which cannot be assigned to a third party, nor passed to creditors in the event of the bankruptcy of the claimant.

Schedule 2, paragraph 23

Paragraph 23 amends the Children (Northern Ireland) Order 1995 to include guarantee State Pension Credit in the list of social security benefits, receipt of which exempts persons from payments in respect of the cost of certain day care and other services provided by a Health and Social Services Trust.

Schedule 2, paragraphs 25 and 26

The amendments of the Jobseekers (Northern Ireland) Order 1995 remove entitlement to income-based Jobseeker's Allowance for those claimants who are entitled to Pension Credit and those claimants whose partners are entitled to Pension Credit.

Schedule 2, paragraph 27

Paragraph 27 amends the Road Traffic (Northern Ireland) Order 1995 to allow the Department of the Environment to make payments, in respect of securing a medical exemption from the requirement to wear a seat belt, where the person seeking the exemption is in receipt of a guarantee State Pension Credit.

Schedule 2, paragraph 28

Paragraph 28 amends Schedule 2 of the Pensions (NI) Order 1995 so that the rules for equalisation of pensionable ages for men and women also apply to Pension Credit.

Schedule 2, paragraph 29

Paragraph 29 amends Article 17(2) of the Deregulation and Contracting Out (NI) Order 1996 so that the State Pension Credit Act 2002 is added to the list of Acts. This would permit the Department to make corresponding provision for NI.

Schedule 2, paragraph 30

Paragraph 30 amends paragraph (3) of Article 34 of the 1998 Order so that regulations may require the Northern Ireland Housing Executive to give priority to Housing Benefit claims received from people who have been receiving Pension Credit.

Schedule 2, paragraph 31

Paragraph 31 amends section 123 of the Immigration and Asylum Act 1999 to include Pension Credit in the definition of Regulations which allow for the backdating of social security benefits to those who are subsequently awarded refugee status for any period they were excluded from payment of benefits while their application for asylum was being considered.

Schedule 2, paragraphs 32 to 37

Paragraphs 32 to 37 amend the Social Security Fraud Act (Northern Ireland) 2001 so that Pension Credit is a disqualifying and sanctionable benefit for the purposes of that Act. The Act provides for certain social security benefits to be reduced where a claimant has been convicted of certain offences relating to social security.

Paragraph 33(a) inserts new subsection (4A) into section 6 of the Act so that the Pension Credit entitlement of an offender can be reduced for any period comprised in the disqualification period by an amount prescribed in regulations.

Paragraph 34(b) inserts new subsection (4A) into section 8 of the Act so that the Pension Credit entitlement of a member of the offender's family can be reduced for the whole or any part of the disqualification period by an amount prescribed in regulations.

FINANCIAL EFFECTS OF THE BILL

Pension Credit

17. Given the policy of parity between Great Britain and Northern Ireland in all matters relating to social security, it is estimated that the measures will increase Northern Ireland social security benefit expenditure by around £25 million in 2003/4 and around £50 million in 2004/5. These estimates include the additional expenditure on Housing Benefit.

Equal pension treatment for widows and widowers

18. It is estimated that correction of the flaw in the legislation will reduce Northern Ireland social security benefit expenditure by around £50,000 per year.

Effects of the bill on public service manpower

Pension credit

19. The measures set out in this Bill simplify the assessment process and the frequency of review, but also increase the overall number of cases to be assessed. The Bill may therefore be expected to result in some increase in public sector manpower. In Northern Ireland an initial assessment indicates that up to October 2004 there will be an increase of 39 additional staff (30%) and that this will decrease to 26 additional staff (20%) thereafter. It is estimated that these additional costs are likely to be approximately £1 million.

EFFECTS ON EQUAL OPPORTUNITY

20. The Bill will not unlawfully, unfairly or unjustifiably discriminate, directly or indirectly, against specified sections of the community.

HUMAN RIGHTS ISSUES

21. The provisions of the Bill are compatible with the provisions of the Human Rights Act 1998.

EQUALITY IMPACT ASSESSMENT

22. In accordance with its duty under section 75 of the Northern Ireland Act 1998 the Department has conducted a screening exercise on these legislative proposals and has concluded that they do not have significant implications for equality of opportunity. Consequently, the Department considers that an equality impact assessment is not necessary.
23. The proposals consolidate and expand existing financial support for pensioners within the section 75 categories. They provide for a minimum level of income for all pensioners, ease the rules on savings that affect pensioners on Minimum Income Guarantee and bring some pensioners into the benefit field for the first time. The proposals also recognise that certain groups such as carers, the severely disabled and those in residential care need more financial support.

Guarantee Credit

• There are approximately 242,000 pensioners aged 60+ in Northern Ireland.

• At March 2002 there were approximately 75,000 pensioners claiming Minimum Income Guarantee. Existing Minimum Income Guarantee claimants will be eligible for Guarantee Credit.
• Approximately 1100 Minimum Income Guarantee claimants have declared savings over £2500. Minimum Income Guarantee is reduced by £1 for every £250 held in savings between £3000 and £6000. Under Guarantee Credit for savings above £6000 a notional rate of income set at around 10 per cent will be taken into account. This is half of the assumed rate of income in Minimum Income Guarantee (20%).
• Minimum Income Guarantee is not payable where savings of more than £12000 are held. There will be no savings limit for Guarantee Credit.
• In keeping with the present provisions for Minimum Income Guarantee, severely disabled people and carers will have access to higher rates of Guarantee Credit. (Approximately 30,000 Minimum Income Guarantee claimants receive a Severe Disability Premium and approximately 1200 receive a Carers Premium).

Savings Credit

When Savings Credit is introduced in 2003 it is estimated that:

• There will be approximately 228,000 pensioners aged 65+ in Northern Ireland (41% males and 59% females).

• Approximately 19,500 Minimum Income Guarantee claimants (Guarantee Credit) aged 65+ will be receiving Retirement Pension of £77 a week or more.
• Approximately 49,000 single persons aged 65+ will be in receipt of Retirement Pension only between £77 and £135 a week.
• Approximately 5200 couples aged 65+ will be in receipt of Retirement Pension only between £123 and £200 a week.
• There will be 2144 persons aged 65+ in residential care/nursing homes in receipt of Retirement Pension only at over £77 a week.
• Approximately 27,000 persons will be in receipt of Severe Disability Premium with Guarantee Credit.
• Approximately 500 persons will be in receipt of Invalid Care Allowance.

Approximately 90,000 people (46% males and 54% females) are potential savings credit beneficiaries. However, information as to the number who will actually benefit is not available.

SECRETARY OF STATE'S CONSENT

24. The Secretary of State has consented under section 10(3)(b) of the Northern Ireland Act 1998 to the Assembly considering this Bill.

LEGISLATIVE COMPETENCE

25. At Introduction the Minister for Social Development had made the following statement under section 9 of the Northern Ireland Act 1998:

"In my view the State Pension Credit Bill would be within the legislative competence of the Northern Ireland Assembly."

Annex A

DEFINITIONS

• the Administration Act means the Social Security Administration (Northern Ireland) Act 1992 (c. 8) which contains most of the rules and regulation making powers relating to the claiming, payment and administration of social security benefits. It is a consolidation of pre-1992 legislation and has been extensively amended since then.
• the Contributions and Benefits Act means the Contributions and Benefits (Northern Ireland) Act 1992 (c. 7) which contains most of the rules relating to social security benefits, with the exception of Job Seekers Allowance. It is a consolidation of pre-1992 legislation and has been extensively amended since then.
• the 1998 Order means the Social Security (Northern Ireland) Order 1998 (N.I. 10) which introduced the new system of decision-making and appeals for child support and social security benefits other than Housing Benefit.
• confirmatory procedure means the procedure under which regulations and orders are laid before the Assembly after making and come into effect on a specified date, but must be confirmed by a resolution of the Assembly within 6 months of that operative date, otherwise they cease to have effect.
• the Department means the Department for Social Development.
• MIG means Minimum Income Guarantee which is paid as Income Support to people aged 60 and over, who are not required to actively seek work and whose net income is less than a minimum level.
• negative resolution means subject to annulment in pursuance of a resolution of the Assembly.
• Primary Threshold is the point at which employees begin to pay National Insurance Contributions.
• SERPS means the state earnings related pension scheme, the basis for calculating Additional Pension (AP). AP is earned on contributions between the Primary Threshold and UEL.
• UEL means the upper earnings limit, the level of weekly earnings above which there is no liability for employee National Insurance contributions. It sets the upper limit for the weekly earnings on which AP accrues and which qualify for contracted-out rebates.

Annex B

PENSION CREDIT EXAMPLES

Note: All figures in this Annex are illustrative, and based on estimates of likely benefit rates in 2003/4 prices.

Background

1. Pension Credit has two elements:

• a guarantee credit - an assumed guaranteed minimum income of £100 per week for a single person and £154 for a couple. This amount will be increased for those who have high applicable amounts under Income Support, that is, those receiving the severe disability premium, those receiving the carer premium, polygamous relationships and those with housing costs;
• a savings credit - a cash addition to reward savings of single people with incomes up to £135 per week and couples with incomes up to £201 per week. These incomes will be increased commensurate with the high applicable amount cases mentioned above.

2. The savings credit may be payable to those with income below the guaranteed minimum as well as those with income above the guaranteed minimum.

3. Income equivalent to the basic state pension

A single pensioner with £77 basic state pension will receive the maximum top up of £23; the total income will be £100. They have no income relevant to the savings credit 1therefore they will not receive a savings credit.

4. Income above the basic state pension but below the guaranteed minimum

• Any relevant income above the basic state pension will count towards the guaranteed minimum.

• A single pensioner with £77 basic state pension and £10 SERPS will receive a top up of £13 to bring the income up to the £100 minimum guarantee. The amount of the savings credit will be 60% of the relevant income above the basic state pension. Thus in this example the recipient will also receive a savings credit of £10 (SERPS) x 60% = £6, bringing the total income to £77 + £10 + £13 + £6 = £106.
• If, however, the single pensioner in the above example had a basic state pension of £70, he would receive a top up of £20 to bring the income up to the guaranteed £100 level. But, the savings credit will be calculated using the balance of the SERPS after the £77 level has been reached, that is, £3. Thus the savings credit will be £3 x 60% = £1.80, bringing the total income to £70 + £10 + £20 + £1.80 = £101.80.

5. Income at the same level as the guaranteed minimum

• Where the basic state pension and other income total £100 (single) or £154 (couple) a top up will not be appropriate but the maximum savings credit will be payable if all the other income is relevant to the savings credit calculation. This maximum will be £23 (i.e. £100 - £77) x 60% = £13.80 for a single person and £31 (i.e. £154 - £123) x 60% = £18.60 for a couple.

• A single recipient with £77 basic state pension and £23 other relevant income will receive a savings credit of £13.80 making the total income £113.80.
• A couple with £123 basic state pension and £31 other relevant income will receive a savings credit of £18.60, making the total £172.60.

6. Income exceeding the guaranteed minimum

• A top up will not be appropriate where the basic state pension and other income exceeds the guaranteed minimum. A savings credit may be appropriate but the maximum £13.80 or £18.60 will be reduced on a sliding scale of 40% for every £1 of relevant income above the guaranteed minimum level.

• A couple has £123 basic state pension and £60 SERPS. The total (£183) exceeds the guaranteed minimum (£154) by £29. Thus, the maximum savings credit of £18.60 will be reduced by 40% of £29 (£11.60) making it £7. The total income will be £123 + £60 + £7 = £190.
• The income level at which the maximum savings credit will be completely eroded is £135 for a single person and £201 for a couple.

Calculation - higher requirements

7. The above examples relate to the majority of recipients. However, severely disabled people, carers, and those with housing costs will have higher requirements (members of a polygamous relationship will also fall into this category).

8. The guaranteed minimum for these groups will be increased as follows:

• severely disabled people - by the amount of the Income Support severe disability premium making it £140 for a single person and £194 for a couple;

• carers - by the amount of Invalid Care Allowance making it £140 for a single person and £194 for a couple;
• those with housing costs - by that amount.

9. The maximum savings credit will be payable if their basic state pension and other relevant income total £100 (single) or £154 (couple) and will remain payable until their relevant income exceeds their personal guaranteed minimum.

10. Income below the guaranteed minimum for normal requirements

A single severely disabled pensioner aged 70 has £77 basic state pension, and £3 income from capital. A top up of £60 will be payable to bring his income to the £140 personal guaranteed minimum. As income from capital is a relevant income, a savings credit (£3 x 60%) = £1.80 will also be appropriate. The total income will be £77 + £3 + £60 + £1.80 = £141.80.

11. Income equivalent to the guaranteed minimum for normal requirements

If the same pensioner also has £20 SERPS the top up would be £40. The savings credit would be the maximum (£13.80) i.e. £23 of relevant income above the basic state pension rate x 60%.

12. Income between the guaranteed minimum for normal requirements but below the personal guaranteed minimum

A single pensioner aged 66 is caring for an elderly relative. She has basic state pension of £77 and £53 SERPS. A top up of £10 will be appropriate to bring her income to the £140 personal guaranteed minimum. As her income is above the guaranteed minimum for normal requirements but does not exceed her personal guaranteed minimum the maximum £13.80 savings credit will be payable.

13. Income above the personal guaranteed minimum

A single pensioner aged 68 has housing costs of £30 per week and income of a basic state pension of £77 and a second pension of £60. No top up is payable as the income exceeds the personal guaranteed minimum of £130. The maximum savings credit of £13.80 is reduced by 40% of the amount over the personal guaranteed minimum i.e. £7 x 40% = £2.80, making the savings credit £11. The total income will be £77 + £60 + £11 = £148.

1 SERPS, graduated pension, increments, second pensions and income from capital and investments.