Savers are already being ‘hammered’ by falling interest rates, but it appears that some may be getting hit twice as the government overestimates the amount of interest they receive when calculating pension credits.
The pension credit scheme is designed to help top up pensioner’s incomes to a minimum of £124 a week. However, anyone with savings of over £6,000 has the interest they earn on those savings included in the calculations at a notional rate of £1 for every £500 worth of savings above the threshold – which equates to roughly 10% interest.
With many savings accounts paying virtually no interest at all, and the Bank of England base rate a fraction of its rate just a few months ago, the vast majority of pensioners would be earning nothing like 10% interest.
In fact, the government’s own national savings account pays just 1.35% – around a seventh of the figure used in the calculations. For a pensioner with say, £15,000 in savings, the difference could be in the region of £700 a year or more.
For the government’s part, they say that the notional figure is not intended as a representation of the interest earned but rather a consideration of how much pensioners with capital in excess of £6000 should contribute to their living expenses.
Either way, an income of £124 a week is not a lot of money to live on and while it may be no comfort to today’s retirees, retirement planning is something that today’s workforce must pay increasing attention to.
To work out how much you need to be saving for your retirement, get a free pension review from one of our independent financial advisers.
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Well said… Great information, keep up the great work!
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