L. A. Outridge

27 July 2009

Our Ref: FoI 980

FAO L. A. Outridge

Thank you for your recent FOI request about the treatment of capital in Pension Credit. As you will be aware we have established principles that offer a relatively simple way of taking capital into account.

The Government recognises that it is important to encourage saving and people are not expected to have to deplete all their capital before they can receive help, so a certain amount of capital, currently £6,000 (£10,000 for those in care homes) is completely ignored for Pension Credit purposes.

We therefore take account of capital above the level of the disregarded amount using a simple formula, £1 for every £500 or part of £500. This rate is not linked, directly or indirectly, to any rate of return that could be achieved. It provides a simple method of calculating the weekly contribution which people with capital in excess of the thresholds are expected to make from those resources to help meet their normal living expenses.

The capital rules in all Income Related Benefits are kept under review, on an ongoing basis. Indeed, the Chancellor announced in the 2009 Budget that from November this year the capital threshold in Pension Credit, for those people not living in care homes, will increase from £6,000 to £10,000.

Pension Credit was introduced to help the most vulnerable pensioners and targets support on those with the lowest incomes and as such it is only reasonable that those with more substantial amounts of capital should contribute towards their own living costs.

The vast majority of pensioners already in receipt of Pension Credit, around 80%, have savings below the threshold and have all their capital fully disregarded. The announcement in Budget 2009 means that from November 2009 this figure increases so that 88% of Pension Credit customers will have their capital fully disregarded.

If you have any queries about this letter please contact me quoting the reference number above.

Yours sincerely

Central FoI Team

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