Pension credit – 1948 style

An unpublished article by Tony Lynes (March 2001), comparing the Government’s pension credit proposals unfavourably with the 1948 National Assistance Regulations.

Replying to a question about the pension credit in the House of Commons on 5 March 2001, the pensions minister, Jeff Rooker, said; “It does not pay to save in this country, and it never has since 1948. The pension credit will reverse that.” It is, therefore, of some interest to compare the Government’s current proposals with the ways in which income from savings and other sources was treated in calculating the resources of a pensioner applying for assistance under the 1948 National Assistance Regulations, which marked the end of the Poor Law.

The National Assistance Board was required by the regulations to disregard certain types and amounts of income. These included the first 20s. a week of earnings. The “scale rate” (what would now be called the MIG) for a single householder was 24s. a week, so a single pensioner could almost double his/her minimum income by taking part-time work. This, the Board’s 1948 annual report explained, “should provide some incentive to work part-time.”

Other types of income which were similarly disregarded included up to 10s.6d. a week in superannuation payments (i.e. occupational pensions). A pensioner receiving both part-time earnings and an occupational pension could have a total of up to 30s.6d. disregarded.

The rules about capital were that the first £50, together with any income from it, was disregarded and each complete £25 above that level was assumed to produce an income of 6d. per week, equivalent to a rate of interest of 5.2%.

How does pension credit 2003 compare?

The Government’s proposals for the pension credit assume that, when it is introduced in 2003, the MIG will be £100 a week for a single pensioner. A pensioner with a total income of less than £134.50 will be able to claim a pension credit. In comparing the 1948 24s. scale rate with the 2003 £100 MIG, it should be noted that national assistance recipients could be awarded discretionary additions for special needs such as laundry, diet and extra fuel. These raised the average income of pensioner recipients by around 1s.6d. a week (the Board’s annual report did not give a precise figure). Adding this to the scale rate would raise it to 25s.6d. That figure would have to be multiplied by 78 to produce the £100 MIG. If the 1948 regulations were updated in line with the MIG, multiplying the amounts of disregarded income and capital by 78, the result for a single pensioner would be as follows:

(1) Earnings up to £78 a week would be entirely disregarded. A pensioner with a part-time job and no other disregarded income would, therefore, be able to have a total income of up to £178 a week while still qualifying for assistance – £43.50 above the proposed income limit of £134.50 for claiming the pension credit.

(2) The first £41.20 a week received under an occupational pension scheme would be entirely disregarded. A pensioner with an occupational pension would, therefore, be able to have a total income of over £140 a week while still qualifying for assistance.

(3) A pensioner with both earnings and an occupational pension would be able to receive income from both sources of up to £119 a week – i.e. a total income of up to £219 – and still qualify for assistance.

(4) Capital up to about £4,000 would be disregarded. Applying the same rate of interest as in 1948, every £2,000 of capital above that level would be assumed to produce an income of £2 a week. Actual interest rates, however, were very low in 1948: a savings bank account paid only 2.5%. It would, therefore, be fairer to suggest that the 2003 equivalent of the 1948 rule might assume £4 weekly income from every £2,000 of capital. For anyone with capital of less than about £7,000-£8,000, this would compare favourably with the proposal to take actual income from capital into account from 2003 on in calculating the pension credit. For those with larger amounts of capital, the pension credit would be more favourable.

Some examples

The Consultation paper on the pension credit gives three examples of how it would work:

(1) John has a basic pension of £77 a week and £20 wages from part-time work. He would get a pension credit of £15, making his total income £112. Under the updated 1948 regulations, the whole of his £20 earnings would be disregarded, so he would get £23 assistance to raise his other income to the £100 MIG level – a total income of £120.

(2) Mary has a basic pension of £77 and a £23 pension from her former employer. Her pension credit is £13.80 a week, giving an overall income of £113.80. Under the updated 1948 rules, her £23 pension would be disregarded and she would get £23 assistance to raise her other income to £100 – a total income of £123.

(3) Ivy has a basic pension of £77 and SERPS of £40 – a total of £117. Her pension credit is £7, making a total of £124 a week. How much she would get under the updated 1948 rules would depend on the treatment of the SERPS pension, for which no provision was made in 1948 because SERPS did not exist. If the SERPS pension were taken into account in full, she would get no assistance and her total income would remain £117. If the SERPS pension were treated in the same way as an occupational pension, however – and this seems a more reasonable assumption, since SERPS provides earnings-related pensions for those not covered by occupational schemes – the whole of the £40 would be disregarded and she would get £23 assistance, giving her a total income of £140 a week instead of £124.

Conclusion

The 1948 system of disregards differed from the pension credit in that it involved disregarding entirely certain types of income up to specified levels, while the pension credit is equivalent to a disregard of 60% of the income concerned. By assuming that the disregards would have been increased in line with the assistance/MIG rates, however, it is possible to make a direct comparison of the effects of the two systems, from which it is apparent that, relative to the level of minimum income, the 1948 assistance regulations were, on the whole, more generous in this respect than the pension credit is expected to be.

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