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Page last updated at 14:38 GMT, Saturday, 7 February 2009

Charity calls for savings changes

By Paul Lewis
BBC Radio 4's Money Box

An older man standing outside the front door of his house
The £6,000 capital limit has not changed since 2001

Age Concern has called on the government to deduct less from the benefits of older people with savings.

At the moment they lose £1 a week off their pension credit for every £500 saved up over a limit of £6,000 - equivalent to 10.4% annual interest.

Age Concern wants the limit raised and the weekly deduction halved to reflect falling interest rates.

The government says 80% of people on pension credit have no deduction from their savings.

Fairer limit?

Age Concern's policy manager Sally West told Money Box on BBC Radio 4,

"The £6,000 capital limit hasn't changed since 2001 and should be increased.

"It would also be much fairer to count, for example, £1 a week income for every £1,000 over the limit.

"That would still be much more than people could earn but it would seem to be a fairer system."

She was speaking in response to complaints to the programme about how the present system worked, including this comment from Chris Smith of Evesham:

"It's utterly beyond belief.

"The government worked out this figure of 10% several years ago.

"The savings return has fallen and the return for most people is around 1%.

"I'm almost speechless."

Interest rate down

The rules affect the 3.2 million people over 60 who claim pension credit, a means-tested benefit which they can claim if their income is less than £173 a week from April.

It's about asking people with savings of more than £6,000 to contribute a small amount to their weekly expenses
Department for Work and Pensions spokesman

However, when their income is assessed it is by a tariff depending on the amount of their savings.

The first £6,000 is ignored, but £6,001 is assumed to be equivalent to £1 a week of income and each £500 above that adds another £1 to the tariff income - a rate of return of 10.4%.

For example, someone with £20,000 in the bank is assumed to have £28 extra income.

But with the average interest rate on savings down to around 1% it will really earn barely £5 a week.

Nest egg protection

A spokesman for the Department for Work and Pensions told the BBC,

"This is not about interest rates.

"Eighty per cent of people on Pension Credit have savings below £6,000 so are not asked to make any contribution.

"It's about asking people with savings of more than £6,000 to contribute a small amount to their weekly expenses."

Sally West says that policy can frighten many pensioners.

"They rely on their life savings as an emergency fund for when the cooker goes wrong or the roof has a leak.

"It is very worrying to have to use savings for everyday expenses such as food and fuel."


BBC Radio 4's Money Box was broadcast on Saturday,
7 February 2009 at 1204 GMT.



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SEE ALSO
Pensioners' lost millions
12 Nov 08 |  Business
Ask the Pensions Expert
19 Dec 08 |  Business
Poor pensioners 'wary of credits'
03 Oct 07 |  Business


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