Pension Credit - is it fair?

mikedaveross

Just a query really...

I dont really get Pension credit. Please tell me if I have this wrong...

If you pay 30 years of NI contributions, you get the full state pension, but are not eligible for pension credit. If you dont have 30 years of full NI contributions, you dont get the full state pension, but pension credit uplifts it anyway to the same amount?

If this is correct, I question the value of purchasing extra NI years? or even working towards them?!?

I am not anywhere near pension age yet, but have full NI. My mother recently has become & I was concerned, but upon checking she had full NI contributions thankfully. It has left me wondering what the point was if it just gets uplifted anyway?

dunstonh

If you pay 30 years of NI contributions, you get the full state pension, but are not eligible for pension credit.
If you dont have 30 years of full NI contributions, you dont get the full state pension, but pension credit uplifts it anyway to the same amount?

The number of years is not consistent as it has changed a number of times over the years.  So, its worth ignoring the actual generic count.  30 is out of date. Its currently 35 but that is only for those that started after the introduction of the single stage pension and not those the have qualifying years from before that.

Pension credit is a benefit not linked to number of years qualifying.

If this is correct, I question the value of purchasing extra NI years? or even working towards them?!?

The majority of people do not rely on state pension alone.  They will have occupational or personal pensions.   So, topping shortfalls can be valuable.

However, if you have done no retirement planning and have nothing put aside for later life and plan to live on the breadline then it may well not be worth topping up.   Do note that one of the intentions of the single state pension was to reduce and remove pension credit in the future.  

DullGreyGuy

mikedaveross said:

Just a query really...

I dont really get Pension credit. Please tell me if I have this wrong...

If you pay 30 years of NI contributions, you get the full state pension, but are not eligible for pension credit. If you dont have 30 years of full NI contributions, you dont get the full state pension, but pension credit uplifts it anyway to the same amount?

If this is correct, I question the value of purchasing extra NI years? or even working towards them?!?

I am not anywhere near pension age yet, but have full NI. My mother recently has become & I was concerned, but upon checking she had full NI contributions thankfully. It has left me wondering what the point was if it just gets uplifted anyway?

Given your age, you will have a working life during the period of mandatory employer pensions and so assuming you dont opt out, which you can only do after enrolment, you will have your state pension + employer pension and so unlikely to qualify for pension credits but they will uplift those without an employers pension which was much more common years ago where it was optional to join etc. 

MallyGirl

Pension Credit tops up:

• your weekly income to £218.15 if you’re single
• your joint weekly income to £332.95 if you have a partner

This takes into account all pensions you have accrued - state and other. 

The full rate of new State Pension is £221.20 a week and that will be on top of anything else you have built up through your working life.

mikedaveross

I understand most people will have additional workplace pensions, & therefor are ineligible. This is fine.

I also understand that some people, through no fault of their own do not have the full state pension & require assistance. There are many reasons I can think of that this may be the case.

But I do question, if poor planning for your future is the reason, & just relying on it just being uplifted anyway, then where is the fairness or incentive to work value? 

af1963

If your *total* income in retirement will be below pension credit level then any extra contributions you make - whether that's buying extra years for state pension, or contributing to a personal or workplace pension -  won't benefit you, at least until your income rises above the level it would be topped up to anyway. 

But as soon as you go over that 'safety net' level, you'll start to benefit from any further pension you can build up. For example, if you bought 4 more years for just over £3k total, a private pension of £4k plus state pension of £10k would become a private pension of £4k plus state pension of over £11k - £1k extra every year. So those years are worth buying.

One thing to watch - if you increase your total income from below pension credit level to *just* above it, you can lose more than you gain, by losing the associated benefits that pension credit qualifies you for. It's a badly designed cliff edge in the tax and benefits system, which affects some less well off pensioners. Effectively, it's a marginal tax rate of over 100%.

hugheskevi

But I do question, if poor planning for your future is the reason, & just relying on it just being uplifted anyway, then where is the fairness or incentive to work value? 

You might have liked the 1908 State Pension system - means-tested, and a test that recipients were of good moral character.

Or maybe you would advocate for a universal state pension with no eligibility requirements, which is something that has been put forward in the past. This is now rather less likely I suspect, given the arguments that would be raised about immigrants immediately getting access to full State Pension support and the same as hard-working folk who have spent all their life in the UK. It would just be toxic in today's media environment.

There is always a tension between State support and incentives. It is commonly said that States create unemployment by the existence of unemployment benefits (ie with nil support claimants either get a job or die, so you have very low unemployment).

In the UK case, we have a widespread but relatively low State Pension and very generous incentives to save privately into a pension and mandatory employer private pension contributions. People are not forced to save, but they are strongly incentivised to, with the stick being a retirement on a low income. That should be plenty enough incentive for most.

We do have the peculiarity that if you are someone who has barely worked and never saved despite being in good health, you are a feckless layabout if under State Pension age, yet a vulnerable pensioner who has put into the system as soon as you reach State Pension age. 

noitsnotme

mikedaveross said:

But I do question, if poor planning for your future is the reason, & just relying on it just being uplifted anyway, then where is the fairness or incentive to work value? 

There’s a huge gap between someone on the minimum handed out by the government in retirement and someone who’s worked an average job and has an average pension (in addition to the state pension).

Then there are people who decide to work extra hard and will have many multiples of income over those on the bare minimum.  These are the people who can often retire far earlier than state pension age too.

I’d rather put the hard work in (and have done so) than scrimp in retirement.

mikedaveross

I'm aware of the facts & amounts (I work in finance), my question as per the title was around the fairness of the government benefit system & how it affects those who have paid in all their life, & those who haven't.

Since the winter fuel payment debacle, im hearing constant adverts about pension credits, which just prompted me to question that this was indeed the correct scenario regarding eligibility for the uplift, & the fairness around that.

af1963

The incentive to work comes from wanting to retire on a bit more than £220 per week.

The fairness comes from recognising that, especially for people whose working life was largely before mandatory enrolment, many didn't have the chance to build up pensions.  (Some part time low paid staff still don't).  How would you determine whether "poor planning for the future" was the reason ?

Plus, what alternative approach would you suggest for someone hitting pension age with minimal income, even if you decided they had planned badly?  Workhouses? Debtors' prisons? 

mikedaveross

To separate the workplace pension argument, from the state pension discussion. The question wasnt about whether someone has a workplace pension or not.

This is about whether it is fair of just, for all, to uplift the state pension to the same amount as someone who has full NI contributions with pension credits, if they havent enough NI years contributions?