UNDERGOING a means test can be a fairly daunting experience, especially trying to understand how the various funding formulas work.

In this section we explain the roles of both capital and income in means test assessments…

Capital

CAPITAL refers to all types of savings, including lump-sum payments, savings from benefits, property and investments. Capital is assessed in the same manner for both the Guarantee Credit and Savings Credit sections of Pension Credit. Some types of capital, including your own home, are not included.

Capital And Benefits

THE amount of capital that you own affects your eligibility for means-tested benefits. For Pension Credit, there is no upper limit of capital above which you can’t claim the benefit. In the Budget in April 2009, the Chancellor announced that the capital disregarded for people over 60 when claiming Pension Credit, Council Tax Benefit (CTB) and Housing Benefit (HB) was being increased from £6,000 to £10,000 from November 2009. The same limit applies for both couples and single people. For care home residents, the first £10,000 capital is also ignored. Unlike Pension Credit, Housing Benefit and Council Tax Benefit have an upper capital limit, which is £16,000. If you have more than this, you’ll not be entitled to HB or CTB, unless you are eligible for Pension Credit Guarantee Credit. For all three of the above benefits, you’ll be treated as having assumed income of £1 per every £500, or part of £500, of capital you have above £10,000.

Your capital is assessed at its current value. If there are expenses involved in selling your capital, 10% of its value will be deducted. Any capital that you own jointly will usually be split equally between the joint owners.

What Is Taken Into Account?

CAPITAL that is counted includes cash, bank and building society accounts, National Savings accounts, stocks and shares, income bonds, any benefits arrears, value of a pre-paid funeral plan property (but not your own home, Premium Bonds and any share of savings you have with somebody else).

What’s Not Included?

THIS includes the value of your home, rental income from another property, the surrender value of any life insurance policy, personal possessions and joint capital with others (except married couples and those living together).

Deprivation Of Capital

IF you deprive yourself of capital or dispose of assets to get Pension Credit, the Pension Service can treat you as still retaining that capital. This is referred to as notional capital. This may occur if you give away money to family members or buy expensive items to reduce your capital.

Income

HERE we examine how income is taken into account or disregarded for Pension Credit (Guarantee Credit). The rules are similar for Pension Credit (Savings Credit), Council Tax Benefit and Housing Benefit.

Income is assessed after tax and national insurance and half of any contribution to a works or personal pension scheme have been deducted. Note that the income and capital of a married couple, partners living together as wife and husband, or those in a same-sex relationship is added together when working out entitlement.

Income Taken Into Account: The majority of income is taken into account when calculating your entitlement to Guarantee Credit. This includes pensions, earnings, benefits, annuity payments, assumed income from savings and Working Tax Credit

Disregarded Income: Income that is ignored includes Attendance Allowance and Constant Attendance Allowance, any Social Fund payments, Disability Living Allowance, income from savings and the special War Widow/Widower’s Pension of £73.64 introduced in 1990 for “pre-1973 widows”.

Income Partly Disregarded: Some sections of weekly income that is disregarded include £5 of earnings from work if you are single, £10 of your earnings and/or your partner’s work income, and £20 of any payment from a lodger.

Qualifying Income For PC Savings Credit

TO CALCULATE entitlement to Savings Credit, you need to know both your income and what’s known as your “qualifying income”. Income is the income used to calculate Guarantee Credit: this is your total income including assumed income from savings over £10,000 but not including amounts that are disregarded such as Attendance Allowance.

Your “qualifying income” is your income minus any of the following benefits: Incapacity Benefit, Working Tax Credit, Severe Disablement Allowance, contributory Employment and Support Allowance, contribution-based Jobseeker’s Allowance, Maternity Allowance and maintenance payments. The majority of pensioners don’t receive these benefits, so their income and qualifying income are usually the same.

Notional Income: In some situations you might be seen as having income that you may not actually possess. This could apply if you’ve failed to apply for a benefit that you are entitled to receive.

Pension Credit “Appropriate Amount”

THIS is the minimum weekly figure intended for your daily living expenses. It is officially called the “appropriate minimum guarantee” but is usually described as the “appropriate amount”. If your income falls below this amount, you’ll receive Guarantee Credit to top it up to this level.

If you need further information, contact HM Revenue and Customs or a local advice agency. The standard minimum rates for Guarantee Credit for 2009/2010 are:

Single people: £130

Couples: £198.45

Additional amount for severe disability:

Single people: £52.85

Couple where one person qualifies: £52.85

Couple where both qualify: £105.70

If you are a carer, you’ll get an extra £29.50 as long as you are in receipt of Carer’s Allowance or are entitled to Carer’s Allowance but cannot receive it because you get another benefit instead.

Contacts List

Citizens Advice Bureau: 020 7833 2181, www.adviceguide.gov.uk

Direct Gov: www.direct.gov.uk

HM Revenue and Customs (HMRC): www.hmrc.gov.uk

Pension Service: 0845 60 60 265, www.thepensionservice.gov.uk

*Please note the details published on this page are targeted at people aged 50 or more and refers to the situation in England.

**Also, please note that the information included here may change from time to time, so please take legal advice if you are in any doubt.