ELDERLY SNARED BY INTEREST TRAP:

First published by: The is Money

Pensioners losing right to Pension Credit and Council Tax Benefit because of rate cuts

Pensioners on low incomes are losing their entitlement to both Pension Credit and Council Tax Benefit because of the savage interest rate cuts. Many are being left hundreds of pounds a year worse off after the Bank of England base rate was slashed from 5.5 per cent to 2 per cent in 12 months. Huge rises in Council Tax bills have already placed a strain on the budgets of thousands of pensioners. 

Protest: Pensioners already face huge increases in Council Tax 

When calculating Pension Credit for those still repaying a mortgage, the Government assumes home loan costs are 1.58 percentage points above base rate. Thus as the headline rate of interest has fallen this year, so have allowances to cover mortgage costs. And as a result, because the Government assumes that pensioners now have more disposable income, they lose other benefits, too. 

This includes those stuck on fixed-rate deals that have not seen any fall in their repayments. Pension Credit is made up of two parts the first being Guaranteed Credit. This tops up weekly incomes for the over-60s to £124.05 for single people and £189.35 for couples. When calculating these benefits the Government includes all income and takes into account how much is spent on housing costs. Over 65s on low incomes can also qualify for Savings Credit worth up to £19.71 a week for singles and £26.13 for couples. This is designed to reward people for saving. 

Those that receive Guaranteed Credit receive the bonus of full Council Tax Benefit from the Government  -  meaning they don't have to pay Council Tax. But those who receive only Savings Credit get reduced Council Tax benefit. Peter Phillips, 71, and his wife Phyllis, 69, are worse off to the tune of £121.36 a month because of the Government's skewed assumptions. They have a seven-year fixed-rate mortgage at 4.6 per cent, with monthly repayments of £457. 

Originally their allowance for housing-cost was £101.14 a week. They were also entitled to 58p a week Guaranteed Credit. Crucially, it also meant they were entitled to the full £26.13 per week Savings Credit  -  and full Council Tax Benefit.  On May 19, 2008, after just one base rate cut, his mortgage rate was assumed to have reduced from 6.83 pc to 6.58 pc. This meant the DWP recalculated their housing costs as £97.44 per week. 

In one swoop they lost entitlement to both Guaranteed Credit, because assumed disposable income had pushed them up above the benefits threshold. It also meant a reduction in both their Council Tax Benefit and in Savings Credit of almost £20 a month. 

They immediately had to startpaying Council Tax of £69 a month.

Mr Phillips, from Stoke-on-Trent, says: 'It's disgraceful that we pensioners are being penalised in this way. I can't afford this.'  His latest statement shows his savings credit has plummeted to £13.04 a week, after he was moved on to an assumed rate of 4.58 per cent making him £121.36 a month worse off overall. 

Fortunately he should receive compensation for this latest drop in income. Yet sadly he will still be £89 a month worse off because of the earlier rate falls. The Government announced in November that it would freeze the rate at 6.08 per cent for six months to stop more people losing benefits. Any losses to benefits incurred when the base rate fell to 3 per cent in November and the assumed rate fell to 4.58 per cent.

READ WHAT: ERIC PICKLES ‘SECRETARY OF STATE’ SAYS ABOUT OVER-CHARGED COUNCIL TAX. 

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