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Two cheers for the Pension Credit?

Briefing note
On 6 October 2003, the pension credit replaced the minimum income guarantee as the principal means-tested benefit for families containing an individual aged 60 or over. This Briefing Note examines the impact of this reform. A finding is that with regards to the governments objectives of giving more resources to low- to middle-income pensioners, rewarding pensioners for having saved in the past and encouraging people of working age to save for the future, the pension credit is likely to achieve the first two but not the third.

This Briefing Note is set out as follows. Section 2 describes how the pension credit operates and why the problems that occurred with the Inland Revenues administration of the new tax credits for families with children in April 2003 should not occur with the pension credit. The distributional impact of the reform is shown in Section 3. Section 4 discusses the inevitable problem of incomplete take-up of the new payment. Section 5 discusses the likely impact of the pension credit on saving and Section 6 discusses some of the longer-term issues that it raises. Section 7 concludes.

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