Does a person on pension credit pay the ‘bedroom tax’?
Bedroom tax: This is Money columnist Steve Webb looks at how the measure works and who is affected
Steve Webb replies: Back in April 2013, the Government made various changes to the rules around housing benefit for those living in properties owned by local authorities or housing associations.
One element of these changes became known as the ‘bedroom tax’, though the Government referred to it as the ‘removal of the spare room subsidy’. I’ll explain how this change works and who it applies to.
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How does the ‘bedroom tax’ work?
For many years, those in private rented accommodation have been subject to a number of limits on the amount of housing benefit that they can claim.
One of those limits is that they can only claim for the rent on a property that meets their needs. If they happen to be renting a property with one or more extra bedrooms and paying a higher rent as a result, the housing benefit system does not meet that additional rent.
What is pension credit?
Pensioners can use this benefit to top up their income if what they are currently getting is below a certain level per week.
Pension credit comes in two parts:
* Guarantee credit tops up your weekly income if it’s below £159.35 and you are single, or below £243.25 if you are in a couple
* Savings credit is an extra payment for those who saved some money towards their retirement, such as in a pension.
You don’t have to pay tax on pension credit.
To get the benefit, make a free phone call to 0800 991234 to find out if you are eligible and how to sign up.
This is Money has a guide to the benefits over-65s might qualify for here.
When the last government was looking to save money on various benefits it concluded that it was unfair that private renters faced a limit on benefit for property larger than they were deemed to need but social tenants did not. Thus the ‘bedroom tax’ was born.
There are various stages to the calculation. Essentially, the local authority will work out how many bedrooms it thinks you need based on the make-up of your family.
A couple would be deemed to need one bedroom, older teenagers of opposite sex might be allowed a bedroom each, younger children of primary school age might be expected to share a bedroom and so forth.
If the house you are in has more bedrooms than you are deemed to ‘need’, then a deduction is made from your housing benefit. This is currently 14 per cent for one excess bedroom and 25 per cent for two or more extra bedrooms.
When the policy was introduced it was very controversial, partly because certain groups of people may have more need for space than would be immediately apparent.
Examples included some disabled people who might need extra space for medical equipment or who may not be able to share a bed with their partner, or perhaps separated families where an extra bedroom is needed for a child who comes to stay for short periods.
In response to this, the government introduced some blanket exemptions to the ‘bedroom tax’, such as allowing a spare bedroom for an overnight carer to come and stay.
Steve Webb: Find out how to ask the former Pensions Minister a question about your retirement savings in the box below
The government also allocated millions of pounds for local authorities to provide discretionary top-up payments on a case-by-case basis for those for whom the rule would create particular hardship.
In Scotland a separate scheme is run by the Scottish government which effectively wipes out the impact of the ‘bedroom tax’.
Are pensioners affected by the bedroom tax?
The original policy applied only to those of working age. For pensioners it was decided that expecting them to go out and get a job to top up their benefit or to downsize to something smaller would be unreasonable.
On that basis, those on pension credit would not be affected.
More recently, the government announced plans to extend the scope of the ‘bedroom tax’ to include pensioners who started a new tenancy after April 2016.
However, following an outcry they changed their minds and the Prime Minister announced in November last year that the change would not go ahead.
ASK STEVE WEBB A PENSION QUESTION
Former Pensions Minister Steve Webb is This Is Money’s Agony Uncle.
He is ready to answer your questions, whether you are still saving, in the process of stopping work, or juggling your finances in retirement.
Since leaving the Department of Work and Pensions after the May 2015 election, Steve has joined pension firm Royal London as director of policy.
If you would like to ask Steve a question about pensions, please email him at firstname.lastname@example.org.
Steve will do his best to reply to your message in a forthcoming column, but he won’t be able to answer everyone or correspond privately with readers. Nothing in his replies constitutes regulated financial advice. Published questions are sometimes edited for brevity or other reasons.
Please include a daytime contact number with your message – this will be kept confidential and not used for marketing purposes.
If Steve is unable to answer your question, you can also contact The Pensions Advisory Service, a Government-backed organisation which gives free help to the public. TPAS can be found here and its number is 0300 123 1047.
Steve receives many questions about state pension forecasts and COPE – the Contracted Out Pension Equivalent. If you are writing to Steve on this topic, he responds to a typical reader question here. It includes links to Steve’s several earlier columns about state pension forecasts and contracting out, which might be helpful.
If you have a question about state pension top-ups, Steve has written a guide which you can find here.
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