Testing times for older people

We are in a period of enormous change to the welfare system. Very large cuts are being made, over several years, to the system; new systems are being introduced for working-age and disability benefits. The effects of welfare reform proposals on older people have not been widely commented on, as the new benefits have been the focus of attention.

In fact, when looked at in ?more detail, many older people will ?be severely affected by the changes ?to their benefits situation following the reforms. Pension credit will ?change structurally, other benefits that were available to older people will disappear, and changes to the treatment of age will have a large effect on many people.

Benefits and older people

Older people have been seen by government as the most deserving of state support for many years. Their basic rates of means-tested benefits are about double those of working-age benefits and they have a more generous treatment of income and savings. Almost half of the total income of people above state pension age is made up of state benefits including state retirement pension.

In the £18 billion-a-year cuts to the welfare system that government announced in 2010, it was stressed that ‘pensioners’ were to be protected. This has been translated into a promise to uprate the basic state pension by a triple guarantee of earnings, prices (Consumer Price Index), or ?2.5 per cent, whichever is highest.

The Prudential Class of 2012 report revealed some large differences in the income situation of older people by gender and partner status:

• A third of women reach retirement single because of divorce or bereavement.

• Women are more than twice as ?likely as men to have no pension.

• 20 per cent of women retiring ?this year will depend on the state pension compared with eight per cent of men.

With most other income types noticeably lower for single older people, the dependence on means-tested support makes them particularly at risk from the effects of benefit changes.

Many older people, very largely because of ignorance rather than stigma or pride, according to recent Department for Work and Pensions (DWP) research, do not receive the means-tested benefits to which they are entitled. It is estimated about a third of all pensioner households entitled to pension credit are not claiming it (1.3 million households) while two-fifths of all pensioner households entitled to council tax benefit are not claiming it (1.7 million households).

Estimated non take-up for both pension credit and council tax benefit by older people has risen over the last decade, increasing from 26 per cent to 33 per cent for pension credit and from 29 per cent to 40 per cent for council tax benefit. In 2008/09, estimates of unclaimed income-related benefits for pensioners totalled £4.5 billion.

Take-up of pension credit is much lower for owner-occupiers than for renters: more than half of all households in owner-occupation who are entitled to pension credit do not claim it, compared with ‘only’ a fifth for renters. It is possible that the move of housing support entirely into pension credit will increase take-up of the benefit or of that element.

Welfare reform

The reforms are not a ‘big bang’ replacement of one system with another, even for the working-age people who are the main focus of the changes. From April 2013, for at least five years, there will be two very different benefit ?systems running side by side as people gradually move from the old to new systems. Each of the two systems may apply to, and affect, older people as well as those younger.

Many of the very substantial cuts and changes to the current benefits system will affect older people. Since this government came into power, we have already seen benefit rule changes that have affected older people. The government announced a freeze to the maximum savings credit award in pension credit for four years. In an unannounced move, the maximum award was reduced for the 2012/2013 year and the claim threshold increased, which further lowered entitlement. Another cut to the maximum and increase to the threshold has been announced for 2013/2014. The 50-plus age element in working tax credit has been abolished.

Non-dependant deductions, for other people in the household, usually relatives, are being increased by an average of 160 per cent. This increase will have a particularly serious impact on households with adult dependants. Increasing numbers of adult children are continuing to live in, or return to, the family home with older parents, reducing the benefits to which they are entitled. Non-payment by a non-dependant is a common contributory factor in housing arrears.

Some 40 per cent of non-dependants live in households where the renter is over 60. It may, of course, be that the older person is the non-dependant (eight per cent of non-dependants for housing benefit are over 60); in which case, the amount they are expected to contribute will rise substantially, unless they receive pension credit.

Pension credit changes

As a consequence of introducing universal credit for working-age claimants, pension credit has to be redesigned as well. Housing benefit is being abolished, as all housing support is taken into the new benefit; child tax credit disappears as well when the new benefit takes over. Other changes are also being introduced into the support available to older people in the future.

There will be a new capital cut-off in pension credit. It seems likely that this will be set at £32,000 rather than the £16,000 of other means-tested benefits. At the moment there is no cut-off although the notional income from capital will often reduce or remove entitlement. Amounts for children will now need to be included in pensions credit as child tax credit is being abolished. This seems likely to ?be an additional amount within guarantee credit.

A new housing credit is to be introduced as a third part of pension credit. The intention is that claimants will be entitled to broadly the same amount of support under the housing credit as they would have been entitled to by way of housing benefit.

A person may be eligible for the housing credit without being entitled to either of the other elements of state pension credit, or may receive more than one element if they meet the relevant conditions. There will be different income calculation rules that apply to this credit.

Housing support for private tenants will become much more localised and variable from place to place, as rent limits for benefits become embedded at different levels in different areas. These levels will be increased in line with the Consumer Price Index annually rather than being linked to the rental market. It is not clear yet whether support for those with mortgages will move into the new housing credit or stay, as at present, part of the guarantee credit.

Mortgage support

There is a very worrying change to mortgage support on the horizon, however. The majority of people getting help with mortgage interest (117,000) are receiving pension credit compared with the 108,000 of working age. This ?has triggered a new proposal from ?the government.

In a consultation in early 2012, it said: “Our strategic vision for support for mortgage interest in the future is that it should provide short-term help to people at a time of personal crisis such as loss of employment or relationship breakdown and incentivise work.” For longer-term needs “… for example, where a claimant is disabled or takes a mortgage into retirement, the government believes that taxpayers should not, in effect, be helping people to acquire personal assets through any potential long-term rises in house prices. We are therefore seeking views on an option to put a charge on property in return for long-term payment of support for mortgage interest.”

It suggested that claimants would repay the sum they received by way of support for mortgage interest (SMI), plus interest to cover costs to government, from the equity in their property. The charge and repayment would begin after two years in receipt of SMI as part of long-term benefits. Ministers and officials have repeated this intention in parliament in recent months although no date has been given for the introduction of the policy.

Personal independence payment

This replacement for disability living allowance will apply to those aged between 16 and 65, initially, and is expected to be paid to fewer people; there is expected to be a 20 per cent reduction in expenditure. For older people this benefit will track the age changes in state pension age (SPA) and continue beyond that age for those already in receipt. This may mean it will be possible, for example, to claim and receive mobility help at increasing ages ?as the SPA moves upwards.

Age boundaries

The point at which someone becomes an ‘older person’ for benefits purposes is changing in a number of ways with consequential effects on entitlement and income. The old simple system, where state pension was given to women at 60 and men at 65, and guaranteed pension credit was awarded at age 60, has gone.

Women’s SPA will eventually equal men’s, with the government working towards a target of November 2018. The SPA will then increase to 66 for both men and women by April 2020. The Autumn Statement 2011 announced that SPA will increase to 67 by April 2028 and 68 by April 2046, although this date is likely to be brought forward. The qualifying age for state pension credit (QASPC) follows SPA and, as SPA increases, it takes longer to qualify for the higher rates of benefit payable to older people.

Major change

In an unexpected move, the Welfare Reform Act introduced a major change to the starting date of claims by couples for pension credit. The benefit will not be available to couples until the younger partner reaches QASPC instead of, as now, the older. The weekly difference between the job seeker’s allowance couple amount and the guarantee pension credit couple allowance in ?2013 is £109.50. The total loss, over the 2.6 years average age difference for married couples, is £14,804.

There are numerous consequences for these ‘mixed-age couples’, as the DWP call them. Pension incomes of the older partner are more likely to extinguish the entitlement to universal credit as that benefit will be paid at a lower rate than pension credit. A younger partner who keeps the household on universal credit will mean that any capital may disqualify the couple from benefits because of the £16,000 cut-off rule and the lower disregard of capital in universal credit. Even where there is no disqualification, the amount of income in the means-test may be very much higher. For example, £15,999 of capital generates a notional income of £12 a week under pension credit rules, but £40 a week under the working-age rules.

The situation of a couple where an older partner on qualifying for a pension might wish to take a capital sum will be very difficult. The lower capital cut-off in working age benefits and the higher rate of notional tariff income mean that the impact may be much more severe than would have been the case where pension credit was in receipt. Taking a cash sum under the ‘triviality’ pension rules may need careful consideration and advice.

Passporting, on the basis of receiving a benefit, is widely used to decide whether people need to pay for some health services or school meals and, less formally, for other things such as concessionary admission charges, fares, fuel tariffs, and other reductions. The situation for mixed-age couples may see them disadvantaged here as well.

Work in retirement after universal credit

Older people will not be able to claim universal credit as an alternative to, or as well as, pension credit, in the way that working tax credit can be claimed currently. This means that in-work support will not be available to the increasing numbers of working older people. Universal credit will have much more generous disregards of earnings than exist in pension credit. Unless changes are made to pension credit rules, this will mean some people could be worse off receiving the usually more generous pension credit than they would have been if they were able to claim universal credit.

Council tax support

Council tax benefit is being abolished from April 2013, in a move reducing spending by ten per cent. In England, the government is passing responsibility for council tax support to local authorities; in Scotland and Wales, it will devolve to the governments.

In England, the Department for Communities and Local Government is responsible for setting the rules that local authorities will follow for council tax support. It is proposing to protect older people by keeping in place national rules, with eligibility and rates defined by regulations that will be ‘broadly similar’ to those in place today. Working-age support is to be set by individual local authorities and ?large cuts averaging 19 per cent seem ?to be likely.

In Scotland, the government and local authorities have decided to use extra funds to maintain the equivalent of the existing scheme for at least one year. In Wales, there will be a nationally defined framework scheme with some reductions, but no special protection for older people.

Forecasting change

It is clear that for many people, especially mixed-age couples, understanding in advance their likely benefit situation will enable them to plan their retirement better. The consequences of taking, for example, a capital sum from a pension may be serious and impossible to undo.
Similarly, starting or finishing a job may have unforeseen effects if not properly considered. The situation of an older partner who retires from work with an existing mortgage emphasises the need for information and planning in these cases.

The introduction of the new elements into ‘pension credit plus’ ?is not expected to happen until 2014 and will take until 2017 to complete migration. There will be an earlier cut-off date for claiming pension credit on the basis of the age of the older partner, which should be no earlier than October 2013, according to the DWP. After this date, new claims will mean the couple moving onto working-age benefits, with their lower rates, instead. Existing mixed-age couple already getting pension credit will stay on pension credit.

Gareth Morgan is MD at Ferret Information Systems