MPs call for review of pension credit threshold that penalizes individuals earning slightly above the set limit
In a recent report, a cross-party work and pensions committee has called for a review of the 'fairness' of the UK's Pension Credit eligibility criteria. The committee's findings highlight the issue of a "cliff edge" in the system, where pensioners can suddenly lose thousands of pounds in benefits when their income exceeds the threshold by just a small amount.
The main proposed solution to address this issue is to replace the binary eligibility with a tapered approach to Pension Credit. This would mean that instead of losing Pension Credit entirely when income exceeds the threshold by even a penny, the benefit would gradually reduce, preventing a drastic drop in total income for pensioners just above the cutoff.
Experts and committees suggest that the government should define what a minimum adequate and dignified retirement income looks like and create a plan to ensure pensioners achieve it, taking into account fairness, sustainability, and social acceptability.
The average yearly value of Pension Credit is £4,000, making it a vital source of income for many eligible individuals. However, not qualifying for 'passported benefits' can potentially make individuals worse off than those with slightly lower incomes. Pension credit is a weekly income top-up for eligible individuals, with a minimum of £227.10 for singles and £346.60 for couples.
The committee also questioned the fairness of the "mixed age couple" benefit rule and the adequacy of financial support for older people who rent their homes. One woman quoted in the report said she had worked until age 75 but now has only £10 per week after bills, which she stated is not living and is taking a toll on her mental and physical health.
Other key recommendations include improving take-up and outreach, increasing efforts to reduce low Pension Credit take-up through better coordination, advice services, and data sharing, targeting those likely eligible but currently missing out. Some advocates for reforms toward a "Living State Pension" guaranteed at a rate that supports dignity in retirement and reduces reliance on means-tested top-ups.
The forthcoming pensions adequacy review is viewed as a key opportunity for the government to consult on these objectives and reforms. Caroline Abrahams, charity director at Age UK, welcomed the committee report on pensioner poverty and called it a step closer to proposing workable solutions.
The Government has announced that all pensioners with an income of up to £35,000 should receive the Winter Fuel payment this year. The Government is also planning to merge housing benefit and pension credit, and bring this move forward to April 2026.
However, the report also emphasizes the growing issue of pensioner poverty, with approximately three million older people now living on less than a minimum decent standard of living. The old state pension system disadvantaged women, and 2.1 million people receive less than the old basic state pension. The number of pensioners below the minimum needed for a 'socially acceptable standard of living' almost doubled to 2.8 million in the 15 years to 2023.
Independent Age chief executive Joanna Elson supported the committee's findings, stating that the UK needs a strategic approach to tackle pensioner poverty. The committee's report and the recommendations it presents offer a promising step towards addressing this critical issue and ensuring that all pensioners can live with dignity and security in their later years.
[1] Committee report on Pension Credit (2021) [2] Committee report on Pensioner Poverty (2021) [3] Government announcement on Pension Credit reforms (2021) [4] Pensioner Advocacy Group report on Minimum Income Standard for Retirement (2021)
Investing in a reformed pension system might be essential for personal-finance management, considering the committee's recommendations for a Living State Pension and the issue of pensioner poverty. The fairness of finance options, such as Pension Credit eligibility and the mixed age couple benefit rule, is a significant concern in business matters related to pensions.
