Premium bonds and pension credit.

mumx3

Does anyone know if having premium bonds will affect the ammount of pension credit that you get.?

My mother receives pc, but has some savings that she would like to put into premium bonds, about £10k, she has £25k already invested with the bank. She is looking for somewhere to put her money without her pension credit being cut.

Also what is the limit of savings before pension credit is cut?.

Thanks

cepheus

mumx3

Premium bonds are included in the capital assumed for the pension credit calculation, although since most types of capital are included it shouldn't change things if you move it from one place to another. The first £6000 of capital is ignored.

Working out your capital
Your capital includes money held in whatever form – cash, bank and
building society accounts, Premium Bonds, investment trusts, shares

There is no fixed limit to the amount of capital people can have, but
if the net value of your capital is more than £6,000 (or £10,000 if
you live permanently in a care home) you will be treated as having
an income from it.

http://www.thepensionservice.gov.uk/pdf/pensioncredit/pc10sapril06.pdf

Just about all savings is classed as capital bar a few specialised products classed as "Life insurance policies/ investment bonds". Unfortunately these usually have to be opened some time in advance of applying for pension credit, in other words you cannot deliberately shelter capital in these to increase pension credit.

Jonbvn

What I cannot understand is that premium bonds (and other tax-free NS&I products) are counted for pensions credit, but completely disregarded for working tax credit. It does seem somewhat inconsistent.

Milarky

Jonbvn wrote: »

What I cannot understand is that premium bonds (and other tax-free NS&I products) are counted for pensions credit, but completely disregarded for working tax credit. It does seem somewhat inconsistent.

It is inconsistent - but that is because it is covered by different legislation (each adopting its own definition of 'means testing') and of course 'tax' credits are the work of one G. Brown...

To be fair, pension (savings) credit does improve on the old 'income support' rules quite a bit:

Savings Credit:
£1 per week income is assumed per £500 (or part thereof) compared to
This equates to '10.4% gross' (10.95 AER)
This gets withdrawn ('taxed') @ 40%
Thus if you received more than 4.38% 'net' from your savings you gain more from these than you lose from pension (savings) credit

Income Support:
£1 per week income is assumed per £250 (or part thereof) compared to
This equates to '20.8% gross' (23.07 AER)
This gets withdrawn ('taxed') @ 100%
Thus if you have to receive more than 23.07% 'net' from your savings to not be left worse off - clearly a near impossibility. [Is it any wonder that people conceal savings to receive benefits?]