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What is Pension Credit?

Jessica Ellis
Jessica Ellis
Jessica Ellis
Jessica Ellis

Pension Credit is a government pension plan introduced in the United Kingdom in 2003. Meant to provide additional financial aid to the elderly and disabled, the program replaced an earlier pension scheme known as the Minimum Income Guarantee. The plan is split into two main segments to better serve a diverse population, known as guarantee credit and savings credit.

UK officials organized Pension Credit to fight the considerable problem of retirees, often called “pensioners,” in poverty. In addition to creating the two-tier structure of pension assistance, Pension Credit also provided for long-term reform of the government assistance program. The program was designed to be flexible in order to easily handle economic changes, such as inflation, as well as gradually increasing retirement ages throughout the UK.

Man climbing a rope
Man climbing a rope

The guarantee credit section of Pension Credit is meant to help still-working people, or those on certain government allowances, reach a certain minimum weekly income. Generally, this program is open to people age 60 and over. The minimum income may change on an annual basis, depending on the state of the economy as well as perceived factors, such as inflation, which may affect personal expenses. Minimum amounts are set based on whether the pensioner is single or part of a domestic couple. The minimum may be higher for certain applicants who have additional costs, such as care taking duties.

The introduction of the savings credit segment in the Pension Credit plan was a revolutionary change to government pension schemes. The savings credit is meant to reward those over 65 who have saved through private or work pension schemes, by giving them additional funds. This benefit is still meant for those with a relatively modest income, but includes those who may have some savings already.

While relatively simply in concept, the Pension Credit system has a somewhat dizzying amount of rules, exceptions, and calculations that may be difficult to understand. According to some experts, up to one-third of households that qualify for benefits are not receiving them, a problem that may have something to do with the complex qualification requirements. On the other hand, some statistics show that pensioners living in low-income households has dropped below 20%.

Since its inception, Pension Credit has been both hailed as a triumph of government assistance and castigated as a bureaucratic nightmare. Many people have expressed confusion over the two-tier system, which makes some pensioners eligible for two separate sets of benefits, while others qualify for only one. Several online calculators can help create an estimate of pension benefits by calculating income level, savings, expenses, and considerations such as other government assistance and caretaking allowances.

Jessica Ellis
Jessica Ellis

With a B.A. in theater from UCLA and a graduate degree in screenwriting from the American Film Institute, Jessica is passionate about drama and film. She has many other interests, and enjoys learning and writing about a wide range of topics in her role as a WiseGEEK writer.

Learn more...
Jessica Ellis
Jessica Ellis

With a B.A. in theater from UCLA and a graduate degree in screenwriting from the American Film Institute, Jessica is passionate about drama and film. She has many other interests, and enjoys learning and writing about a wide range of topics in her role as a WiseGEEK writer.

Learn more...

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