What is pension credit and how do I claim it?

If you’ve reached retirement age and don’t have a significant pension pot to fall back on, pension credit can help to boost your income.

This benefit will make sure your weekly income stays at a certain level, even if you haven’t paid enough National Insurance to qualify for a full state pension.

But there are a few rules you’ll need to follow in order to make a successful claim.

What is pension credit?

Pension credit is a type of benefit offered to people who are over State Pension age. It’s a helpful way to boost your income if you have only a modest private pension, or none at all.

There are two types of pension credit, though only one is offered to those who reach State Pension age this year.

Guarantee credit

This type of pension credit is designed to boost the income of pension-age people on low incomes.

If you’re worried that you haven’t saved much for retirement, or haven’t reached 35 years of National Insurance contributions, pension credit can offer peace of mind and help you make ends meet.

Savings credit

If you reached state pension age before 6 April 2016, you can claim this additional benefit.

You’ll need to meet minimum income requirements, as it is a bonus rather than a safety net. It’s no longer offered to those who reach the state pension age on or after 6 April 2016.

While no one who recently reached the state pension age can claim this, couples can still qualify if one partner reached the state pension age before 6 April 2016.

Claiming pension credit also makes you eligible for other financial assistance or benefits, including a free TV licence (if you’re over 75), council tax reduction, housing benefits, and boiler grants.

Who is eligible for pension credit in the UK?

Pension credits are available to those who are State Pension age or above.

Currently, that’s 66 for both men and women, but you can also use the government’s State Pension Calculator to double check if you’re eligible (you can also use our pension calculator here).

Guarantee credits are broadly available for those on a lower income, or who haven’t got another source of reliable income (either private or state) to rely on.

To qualify for guarantee credit, you’ll need to have a weekly income of less than £218.15 if you’re single, or £332.95 if you have a partner or spouse.

There is no savings limit for pension credit, but if you have a nest egg of more than £10,000, this will affect how much you receive.

If you haven’t paid enough NI contributions to qualify for a full state pension, or have claimed other state benefits and are under the threshold, you’re also likely to be eligible.

For savings credit, you or your partner will need to have reached the state pension age before 6 April 2016, and have a minimum income of £189.80 per week if you’re single, or a minimum combined income of £301.22 per week if you’re a couple, to claim.

How much pension credit will I get?

The most common form of pension credit, known as guarantee credit, is what most people will claim.

Government figures suggest the average person claims £75 per week, adding up to over £3,900 of extra income every year. The amount you receive will be tailored to your circumstances.

Every form of income you receive will be taken into account, including:

• The basic and additional state pension
• Additional workplace pensions
• Private pensions
• Income from any work you undertake
• Other state benefits

Your savings or investments will also be assessed, unless they are under £10,000.

However, there are certain exceptions to this, including if you pay mortgage interest, are a carer, are responsible for a child or have a severe disability.

Let’s say you take home £120 per week from your part-time job and are deferring claiming your pension. You could get a top up of £62.60 every week to boost your income.

If you and your partner reached state pension age before 6 April 2016, you can also claim savings credit – often referred to as a government reward for those who have managed to save for retirement.

You’ll receive 60p for every £1 of income over the minimum amounts, up to £17.01 or £19.04 per week for individuals and couples, respectively.

How do I claim pension credit?

Claiming pension credit is a relatively simple process.

Here are the main steps to making a claim.

1. Use the gov.uk calculator to work out whether you’re eligible for pension credit benefits. Even if you’re sure you meet all the criteria listed above, it’s a good idea to do this as you may discover other benefits or allowances you’re also entitled to.
2. Give the pension credit claim line a call on 0800 99 1234, or 0800 169 0133 if you use a textphone.

A member of staff will fill in your application for you over the phone. Make sure you have:

1. Your National Insurance number
2. Your bank account details (your sort code and account number)
3. Information about your income
4. Information about any savings or investments
5. Information about any private or state pension you’re claiming
6. Housing costs, including mortgage, rent, interest payments or service charges

You’ll also need your partner’s details on hand if you’re making a joint claim. If you already claim your state pension and aren’t responsible for any young people, you can also claim online at gov.uk.

You’ll find out if your claim has been successful. It’s difficult to say how long it will take, but you’ll receive your first payment of most state benefits within six weeks of applying.

Experts advise applying up to four months before you want to begin claiming to make sure there are no gaps in your income.

Statistics from the Department of Work and Pensions (DWP) suggest up to 880,000 households across the UK eligible for pension credit are yet to claim, missing out on an average of £3,900 every year.

Age UK also states almost 90% of pension credit claims are successful.

If you’re confident you meet the criteria, it’s best to apply. Even if you’re unsuccessful, you can apply again each tax year or if your circumstances change, such as losing your partner or facing a reduction in other forms of income.

What is guarantee pension credit?

Guarantee credit is a type of pension credit benefit that’s available to people who have reached the state pension age.

Essentially, it provides you with a guaranteed weekly income of at least £218.15 a week if you're single, and £332.95 a week if you’re living with a partner or spouse who is also eligible.

It’s not the same as the full state pension, which can be up to £221.20 per week, but can be used to top up a basic state pension (£169.50 per week) if you need extra income.

What is the pension credit savings limit?

You’ll need to have no more than £10,000 in savings to claim pension credit.

This amount can be in cash savings, an ISA or other pension fund, or as another type of investment such as property.

If you own the home you’re living in this will be excluded, and you can still be eligible for pension credit.

Is pension credit taxable?

You don’t pay tax on either type of pension credit.

Even if you’re still working, you’ll need to have an income far below the £12,570 threshold to qualify for pension credit, so you will not have to pay income tax in any case.

However, if you are working and claim savings credit, then even though you may have to pay income tax on your job-related income, you will still not be taxed on your pension credit.

Can you still work if you’re receiving pension credit?

You can still work if you’re receiving pension credit.

As long as your income is below £218.15 per week, or adds up to less than £332.95 per week if you’re claiming with your partner, you’re free to continue working and claim pension credit.

If you’d like to continue to work past State Pension age, we’ve got plenty of advice on how to phase into retirement gradually.

Get expert financial advice

Pension credit offers vital support to those who have reached the state pension age but need a boost to their income.

Whether you’re eligible for guarantee credit or savings credit, understanding the requirements and application process can ensure you receive the financial help you need.

With no tax on the benefit itself, it’s a valuable resource for enhancing your financial stability in retirement. Make sure to explore your eligibility, apply on time, and take advantage of the benefits of pension credit.

Unbiased can match you with a financial adviser for expert financial advice on managing your retirement income and planning for a secure financial future.