Are you missing out on £2,000 per year in pension savings?

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It is not often that the government tries and fails to give money away, but earlier this year the Department for Work and Pensions (DWP) admitted that a whopping £2.8 billion available as help for pensioners on modest incomes was going unclaimed.

This is nearly one third of the entire amount available to be claimed by pensioners.

The same document suggested that around 1.2 million pensioners were missing out on an average of over £2,000 per year each. So who are these people, and why are they not claiming what they are entitled to?

The benefit that we are talking about here is called Pension Credit and it has two elements. The first is a 'Guarantee Credit', which is designed to top up income in retirement from state and private pensions to at least £8,000 per year.

WHO IS MOST LIKELY TO MISS OUT?

The second element is called the 'Savings Credit' and provides a modest weekly payment for those who have done a bit of additional saving (often taking them beyond the £8,000 per year level) through a company or private pension or similar.

In general, people who are entitled to claim large amounts of benefit are more likely to make the effort to claim than those with small entitlements, which is not surprising.

But one of the important advantages of claiming even a few pounds of Guarantee Credit is that it acts as an automatic 'passport' to other forms of help such as getting your rent or council tax paid by your local authority.

The DWP statistics suggest that those most likely to miss out on what they are entitled to are couples and older pensioners, and previous research has shown that owner-occupiers have a reduced propensity to claim.

It may well be that retired people who own their own home assume that there is nothing in the social security system for them, when in fact it's possible to claim Pension Credit regardless of your housing tenure.

'FREE MONEY'

One obvious question would be why the government doesn't just give people the money if it knows that they are entitled to it.

The answer to this is that although the government holds a certain amount of information about people, it is not all held in one place, and in particular there is no one database that holds information for an entire household rather than for a given individual.

So, for example, the DWP will know who is receiving state pensions, and HM Revenue and Customs may know who is receiving a company pension, but tying together all of the state and private pensions being drawn by both members of a couple is not straightforward.

There have been efforts to try to use government data and proactively contact people who might be entitled to Pension Credit, in order to encourage them to make a claim. But even this approach did not work.

Some people contacted thought they were being scammed when they got a letter purporting to be from the government offering them free money, while others either did not want to claim or did not believe that they might be entitled.

HOW DO I CLAIM?

The net result of all of this is that billions of pounds of help to which people are legally entitled sits in the government's coffers. I would much prefer to see this money in the hands of those who could do with a bit more help.

Occasionally people say that they feel it is like claiming 'charity' to apply for an income-related benefit.

But these benefits are paid for out of taxation and most retired people will have put a lot into the system through taxes during their working life, so there is no reason why they should not get something back if money is a bit tight in later life.

There is more information about Pension Credit on the gov.uk website and you can make a claim by phoning free on 0800 99 1234.

Even if your own income is above this level, it may be that an elderly friend or relative is one of the million plus pensioners who could get a top-up, so please spread the word.

Steve Webb is director of policy at Royal London.


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