(2) if during the economic downturn he will temporarily abandon the practice of attributing £1 a week as income for every £500 in savings over £6,000 when calculating the pension credit;
(3) what representations he has received on the practice of attributing £1 a week as income for every £500 in savings over £6,000 when calculating pension credit.
The formula for calculating the amount of notional income assumed from capital in pension credit, known as tariff income, is not intended to represent any rate of return that could be obtained from investing capital. It provides a simple method of calculating the weekly contribution that people with capital in excess of the level of the disregard are expected to make from their resources to help meet their normal living costs.
In pension credit the first £6,000 of capital is fully disregarded (£10,000 for those in care homes). For each £500 (or part of £500) above this level we assume notional income at a rate of £1.
The vast majority of pensioners who are eligible for pension credit have savings below the level of the disregard and do not have any tariff income applied.
When income support was introduced in 1988 the rate of tariff income as set out in the legislation was £1 for every £250. With the introduction of pension credit we halved this rate to £1 for every £500, and also abolished the upper capital limit—giving more people access to support.
Pension credit, through the savings credit, is designed to specifically reward pensioners with low or modest second pensions or savings. Notional income from capital is also qualifying income for the savings credit.
As there is no link with actual market rates, the tariff income rates within the income related benefits are not adjusted when interest rates change.
The tariff income levels are kept under continual review but they can only be increased when priorities and resources allow.