My wife has just been left some inheritance. Will it affect my and my wife’s pension credit guarantee and savings credit?
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Steve Webb replies: In previous generations anyone inheriting wealth from their parents typically did so in their 50s.
But as our parents’ generation lives longer, the age at which we may expect to inherit is also going up.
This is especially true if it is only on the death of the second parent that any larger inheritance passes down through the generations.
According to the Institute for Fiscal Studies whereas those born in the 1960s typically inherit at around age 58, those born in the 1970s may expect to inherit at around 62, and those born in the 1980s at around 64 on average.
All of this means that inheriting money when you are over pension age will become increasingly common, and so it is important to understand how this affects any benefits you may receive.
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On your specific question, the short answer is ‘yes’, any inheritance may affect your pension credit, but a lot depends on things like the size of the inheritance and what other savings you and your wife have.
When working out how much you have saved, the value of the home you live in is always ignored.
In addition, ‘capital’ such as money in the bank, Isas, Premium Bonds, second homes or inheritance is ignored if it is valued at under £10,000.
But if your capital is above £10,000, you are ‘deemed’ to have an income of £1 per week for every complete £500 in capital above the first £10,000.
To give an example, if you have £25,000 sitting in an Isa, the Department for Work and Pensions would:
– Ignore the first £10,000
– Look at the remaining £15,000, and work out that this is thirty ‘chunks’ of £500
– Treat you as if you had an income of £30 per week from these savings which would be added to your pensions and other regular income.
In this example, someone with £25,000 in savings is being treated as getting £30 per week or £1,560 per year in interest, an implied interest rate of 6.24 per cent. This is obviously above even the ‘best buy’ rates on offer for things like Isas.
This approach basically reflects the fact that pension credit is regarded as a ‘safety net’ for people who cannot support themselves, and the DWP doesn’t really want to be paying benefit to those who have tens of thousands of pounds in the bank.
In your question you mentioned ‘guarantee credit’ and ‘savings credit’.
Guarantee credit is the element of pension credit that tops up income to £227.10 a week if you are single or £346.60 if you are a couple, and which applies to everyone if they are eligible.
Savings credit is an additional element of pension credit no longer available on new claims, but which was awarded for some claims made before April 2016.
The idea of the savings credit was to reduce the penalty under the pension credit system for people who have saved for their retirement through a pension or other savings vehicle.
In your case, although your guarantee credit could go down because of your inheritance, there might be some small offset through higher savings credit.
However, the whole thing is highly complex and the basic principle is that people who inherit money are likely to get less help overall.
One response might be to get rid of the inheritance as soon as possible, perhaps through gifts to the next generation, a holiday of a lifetime or a new car.
Whilst this would be a natural reaction, you need to be very careful that you are not seen as having deliberately ‘deprived’ yourself of capital.
Although there is no hard and fast rule as to what counts, the basic idea is that if you do something you wouldn’t otherwise have done, primarily because you are trying to maximise your benefit, then you probably fall the wrong side of the line.
If so, they can treat you ‘as if’ you still had the money even if it has gone.
It is tempting to assume that the DWP would never find out if someone had money which quickly went in and out of their bank account in this way.
But there is a law currently going through Parliament (the Public Authorities (Fraud, Error and Recovery) Bill) which gives the DWP new powers to request bank statements from people suspected of fraud and, in some cases, recover money directly from bank accounts.
On a more positive note, if your pension credit is reduced because of this inheritance, and assuming that you run down the money in a measured and natural way, then you can ask DWP to reassess your pension credit as the months and years go by.
As your inheritance reduces, your income from capital will go down, and your pension credit should start to go back up again.
This is an important point for anyone on pension credit to bear in mind if they have some savings.
If you find yourself eating into your savings and now have less than when you were last assessed, you can contact the DWP and get a reassessment which should result in a higher award if nothing else has changed.
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