State Pension Credit and the Minimum Income Guarantee (MIG)

The Minimum Income Guarantee (MIG)

The Minimum Income Guarantee (MIG) was introduced in April 1999 and was available to anyone of the age of 60. It was an entitlement to income, which might be reinforced by income support or other sources of income.

To qualify for benefit, an individual had to be over 60 with capital not exceeding £8000. Any capital above £8000 was converted to ‘income’ according to a tariff. This was then deemed to be part of the MIG and therefore reduced State input by way of income support.

In Social Security (Incapacity Benefit)(Contributions and Abatement) Regulations 2002, a ‘deemed’ income was assumed at £1 for every £250 between £6000 and £12,000). For those in residential care and nursing homes, higher ‘disregards’ of £10,000 to £16,000 applied.

State Pension Credit

State pension credit was introduced on October 2003, following the State Pension Credit Act 2002, as the replacement for the MIG.

Deemed income was altered also to £1 for every £500 above £6000 and £10,000 for those in residential care and nursing homes.

State pension credit is designed to give individuals and couples a minimum level of income in retirement.

State pension credit is a means-tested welfare benefit payable to pensioners. It consists of two parts:

Guarantee credit.
Savings credit.

Depending on their circumstances, individuals and couples (but only one of a couple) may be able to claim:

The guarantee credit.
The savings credit.
Both the guarantee credit and the savings credit.

Guarantee Credit

The guarantee credit provides financial help for eligible individuals aged 60 or over whose income is below a certain level set by law. However, their partner does not need to be aged 60 or over. The level that applies depends on their circumstances and is called the appropriate amount.

The age at which the guarantee credit is payable will rise to age 65 between 2010 and 2020, in line with the increase in the State pension age for women.

The appropriate amount consists of:

The standard amount. This is the minimum amount of money the Government says an individual needs for normal expenses and those of a partner, if they have one. The standard amount for the current tax year (2010/11) is £132.60 for an individual and £202.40 for a couple.

It may also include some, or all, of the following extra amounts:

An extra amount for severe disability;
An extra amount for carers;
An extra amount for housing costs. This to cover certain accommodation costs that are not met by Housing Benefit and Council Tax Benefit
A transitional extra amount. This is for individuals who were getting Income Support or Jobseeker’s Allowance before they started to get Pension Credit.

The total of this sum is the appropriate amount. If an individual is not entitled to any of the extra amounts, the appropriate amount will be the same as the standard amount.

The quantity of guarantee credit an individual may be entitled to will depend on other money they have, such as other pensions and savings. The guarantee credit payment will bridge the gap between the money already coming in and the appropriate amount.

The Department for Work and Pensions (DWP) take the following sources of ‘qualifying’ income into account when calculating guarantee credit for an individual (and their partner):

State Pension.
An occupational or private pension scheme.
The Pension Protection Fund or Financial Assistance Scheme.
A retirement annuity contract.
Civil List pensions.
Annuities.
Most social security benefits, including industrial injury benefits and similar foreign benefits.
War Disablement, War Widow’s or War Widower’s Pensions (or foreign equivalents) and Overage Infirm Allowances.
Guaranteed Income Payments (and payments to adults for whom a Child Payment had been paid) from the Armed Forces Compensation Scheme.
Pensions paid by the German or Austrian government to victims of Nazi persecution.
Maintenance from a spouse or civil partner or former spouse or civil partner.
Payments under the Workmen’s Compensation Scheme.
Earnings.
Working Tax Credit.
Payments from lodgers, boarders or people renting part of your home (subtenants).
Regular payments from an equity release scheme
Royalties or public lending rights payments.
Regular payments from trust funds.

An individual’s qualifying income may also include a deemed income from capital.

Investments that include some life insurance, for example investment bonds, are ignored in establishing an individual’s entitlement to State pension credit, provided the agreement states how the payment on death is worked out. However, any income taken from the investment will be taken into account, since this would be deemed to be income taken from capital.

Pensioners will continue to be able to receive the following Social Security Benefits on top of State pension credit, as they are not included in the calculation:

Housing Benefit.
Council Tax Benefit.
Attendance Allowance.
Disability Living Allowance.
Christmas Bonus.
Bereavement Payment.
The following additions to industrial injury benefits:
Constant Attendance Allowance;
Mobility Supplement.
Exceptionally Severe Disablement Allowance.
Any Social Fund payment (including Winter Fuel and Cold Weather Payments).
Child Benefit.
Guardian’s Allowance.
Child’s Special Allowance.
Dependency increases for anyone other than you or your partner.
Foreign benefits similar to those listed above.

At present, the guarantee credit will be increased in line with earnings for the remainder of this Parliament. It is expected (but not guaranteed) to continue to rise on this basis.

Savings credit

Savings credit is an extra amount for individuals aged 65 or over who have made some provision for their retirement (such as savings or a second pension) which brings their qualifying income above a level called the savings credit threshold. It is possible to receive a savings credit on top of a guarantee credit. It may even be possible to receive a savings credit even if an individual’s qualifying income is above the appropriate amount.

The savings credit threshold is equal to the full basic State pension, £97.65 per week for an individual and £156.15 per week for a couple for the current tax year (2010/11).

If an individual’s qualifying income is the same as or below the savings credit threshold, they cannot get savings credit.

Savings credit is 60% of the difference between your qualifying income and the savings credit threshold, up to a maximum of £20.52 per week for an individual or £27.09 per week for a couple for the current tax year (2010/11).

An individual or couple is entitled to the maximum savings credit when their qualifying income is greater than or equal to the standard amount and less than or equal to the appropriate amount.

If an individual or couple’s qualifying income is greater than the appropriate amount, their entitlement to savings credit is reduced by 40% per £1 of qualifying income over the appropriate amount until the savings credit is zero.

Qualifying income for savings credit is worked out in the same way as income for the guarantee credit, but does not include:

Working Tax Credit;
Incapacity Benefit;
Jobseeker’s Allowance;
Severe Disablement Allowance;
Maternity Allowance; or
Maintenance payments from a spouse or former spouse.

For more information, please contact us.