Lift the tax credit income test for State Pension Credit

[MaxGhenis]

Fixes #2032

Summary

tax_credits_applicable_income lifted the tax credit income test for Income Support, income-based JSA and income-related ESA, but not for State Pension Credit, which SI 2002/2008 reg 4(1)(d) also prescribes. This PR adds the Pension Credit passport.

Working tax credit is Pension Credit income, so Pension Credit and the passport depend on each other. The passport is decided on the Pension Credit payable with the passported award counted, calculated in a core branch.

The passport makes the tested income nil, and the two-year-old childcare criteria read that tested income. So this PR also splits out tax_credits_current_year_income, the income before the passport, and the childcare criteria now test that gross figure.

Stacked on #2027 (legacy-award-readers-claimant-partner, merged in at fc1ff55d1), which switched the other passports to the claimant's and partner's awards. #2027 is stacked on #2013 and #2001; #1896 has merged. #2061 and #2057 are stacked on this PR.

Law (fetched verbatim from legislation.gov.uk /data.xml, 2026-10-02)

• TCA 2002 s.7(2): "Subsection (1) does not apply in relation to the entitlement of a person or persons to a tax credit for so long as the person, or either of the persons, is entitled to any social security benefit prescribed for the purposes of this subsection in relation to the tax credit."

• SI 2002/2008 reg 4:

  • (1): "Subject to paragraph (2), the following are social security benefits prescribed for the purposes of section 7(2) of the Act in relation to child tax credit and working tax credit— (a) income support ... other than income support to which a person is entitled only by virtue of regulation 6(2) and (3) of the Income Support (General) Regulations 1987; ... (c) an income-based jobseeker's allowance ...; (d) state pension credit within the meaning of the State Pension Credit Act 2002 or the State Pension Credit Act (Northern Ireland) 2002; (e) an income-related employment and support allowance ..."
  • (2): "Paragraph (1) shall not apply in relation to working tax credit during the four-week period described in regulation 7D of the Working Tax Credit (Entitlement and Maximum Rate) Regulations 2002 (ceasing to undertake work or working for less than 16 or 30 hours per week)."
  • Reg 4(1)(d) was added from 26 November 2003 (SI 2003/2815 reg 18), and reg 4(2) from 6 April 2010 (SI 2010/751 reg 17(2)).

• SPCA 2002 s.1(3): a claimant entitled to state pension credit is entitled "(a) to a guarantee credit ... or (b) to a savings credit ... (or to both ...)".

• SPCA 2002 s.15(1): "In this Act “income” means income of any of the following descriptions—", with para (b) "working tax credit".

  • Child tax credit is named nowhere in s.15(1), nor among the descriptions SPC Regs 2002 reg 15(5) prescribes for para (j).
  • That working tax credit needs its own paragraph implies tax credits are not "prescribed social security benefits" under para (e). This is an inference, not a quote.
  • So CTC is not Pension Credit income, and in the model Pension Credit reads tax credits only through working_tax_credit.

• SPCA 2002 s.4(1A), from 15 May 2019: "A claimant is not entitled to state pension credit if he is a member of a couple the other member of which has not attained the qualifying age." SI 2019/37 art. 4 saves it for a mixed-age couple entitled to Pension Credit or Housing Benefit on 14 May 2019, until a day on which they are entitled to neither (art. 4(2)). One qualification: a person moved to Universal Credit under a migration notice keeps the saving if they claim Housing Benefit or Pension Credit within three months, because their days on Universal Credit are disregarded (art. 4(3)-(4)).

• SI 2014/2147 reg 1(2), "eligible child", as at 1 September 2024. The two-year-old offer covers a child whose parent is entitled to:

  • "child tax credit where that parent is not also entitled to working tax credit ... and has an annual gross income not exceeding £16,190", or
  • working tax credit "by virtue of an award which is based on an annual income not exceeding £16,190".

  SI 2025/1261 omitted these limbs from 1 January 2026.

• WTC Regs 2002 reg 4(1), Second condition, second variation (a joint claim with no child). "The person" who works must be:

  • "aged at least 25 and undertakes work for not less than 30 hours per week"; or
  • "aged at least 60 and undertakes work for not less than 16 hours per week"; or
  • "aged at least 16 and undertakes work for not less than 16 hours per week and has a physical or mental disability" that puts them at a disadvantage in getting a job.

• IS Regs 1987 reg 6. As at 6 April 2003, paras (2) and (3) said a lone parent who started remunerative work after 26 weeks on Income Support or income-based JSA "shall not be treated as engaged in remunerative work for the period of 14 days" (the lone parent run-on). SI 2003/1589 reg 2(a)(i) omitted paras (2) and (3) from 25 October 2004.

The questions

Any Pension Credit, or only the guarantee credit? Any. Reg 4(1)(d) names "state pension credit within the meaning of" the Act, and s.1(3) makes that a guarantee credit, a savings credit or both. The passport reads pension_credit (both credits, after take-up), not guarantee_credit. A test covers a couple on the savings credit alone.

Entitled, so claimed. There is no entitlement to a benefit without a claim (SSAA 1992 s.1(1), (4)(ab)). pension_credit applies would_claim_pc, so unclaimed Pension Credit gives no passport, as income_support does for Income Support.

Mixed-age couples. A couple claims tax credits jointly, and reg 4 lifts the test if "either of the persons" is entitled to Pension Credit. So the older partner's Pension Credit passports the couple's whole joint award: CTC for their children, and WTC on either partner's work.

• WTC's own conditions still apply to the person who works. With no child, that person must be at least 60 and work 16 hours, or be at least 25 and work 30 hours, or be at least 16, work 16 hours and have a qualifying disability.
• With a child, the third variation adds the couple's 24-hour limb (one partner works 16 hours), and a 16-hour limb where the other partner is incapacitated, in hospital, in prison or entitled to Carer's Allowance.
• The model pools those conditions across the couple: WTC eligibility pools the age, disability and hours conditions across a couple (WTC Regs 2002 reg 4(1)) #2042, found in review.
• From 15 May 2019, s.4(1A) bars Pension Credit for a mixed-age couple unless the art. 4 saving applies. A couple who lose the saving (a day with neither Pension Credit nor HB, apart from art. 4(3)-(4)'s three-month window after a managed move to Universal Credit) cannot reclaim, so the passport ends and the income test returns.
• On this base, is_pension_credit_eligible applies s.4(1A) in every year and does not model the art. 4 saving. So the model never gives a mixed-age couple Pension Credit, and so never the passport; a test covers this.
• Date the mixed-age couple Pension Credit exclusion and model the SI 2019/37 saving #1940 dates s.4(1A) from 15 May 2019 and models the saving. Because this PR reads pension_credit, a couple who get Pension Credit under Date the mixed-age couple Pension Credit exclusion and model the SI 2019/37 saving #1940 get the passport with no further change.
• Tax credits ended on 5 April 2025, so the interaction is confined to 2024-25 and earlier. The model's tax credit thresholds start in 2016-17.

The reg 4(1)(a) exception (IS Regs 1987 reg 6(2)-(3)). No modelling is needed. It excluded Income Support paid only under the 14-day lone parent run-on. Those paragraphs were omitted from 25 October 2004, so no one has been entitled to Income Support "only by virtue of" them since then. That is long before the model's first tax credit year. The model has no Income Support run-on in any case.

Reg 4(2), the WTC four-week run-on. Not modelled. During the reg 7D run-on, which starts when the claimant stops work or drops below the hours condition, the passport does not apply to WTC (CTC stays passported). The model's WTC is a whole-year award on the year's hours, with no run-on period. working_tax_credit_run_on is a whole-year flag read only by the targeted childcare criteria. Using it to switch the WTC passport off for a whole year would overstate a four-week rule 13-fold. The code comment records this.

The dependency cycle, and which state the model picks

Pension Credit counts working tax credit as income (s.15(1)(b)), and the tax credit income test reads Pension Credit (s.7(2)). The law gives no tie-break. Write Wmax for the passported (maximum) WTC award, Wt for the income-tested one, and PC(W) for Pension Credit computed with WTC W. Then:

Case	Consistent states	Model
PC(Wmax) > 0	passported, only	passport; WTC Wmax, Pension Credit PC(Wmax)
PC(Wt) = 0	income-tested, only	no passport
PC(Wmax) = 0 < PC(Wt)	none: lifting the test ends Pension Credit, which restores the test	no passport; WTC Wt, Pension Credit PC(Wt)

The table assumes Pension Credit never rises with WTC. That holds in law: the guarantee credit falls by the whole of it (s.2(2)), and WTC is not qualifying income for the savings credit (SPC Regs reg 9(a)).

The model's savings credit counts WTC as qualifying income (#1954), so in the model it can rise 20p per £1 of WTC. That adds a fourth, model-only case: PC(Wt) = 0 < PC(Wmax), where both states are consistent and the model takes the passport. In law Pension Credit is nil either way. Reaching it needs income the model excludes from qualifying income (contributory ESA or JSA) alongside WTC above State Pension age. No 2024 Enhanced FRS family has both Pension Credit and tax credits, so none is affected.

"Entitled" is read as payable. At income exactly equal to the minimum guarantee, where no savings credit is payable, a nil guarantee credit gives no passport; this boundary has measure zero.

The rule is: the passport holds when Pension Credit stays payable with the passported award counted. pension_credit_with_passported_tax_credits computes this in a core branch (tax_credits_pension_credit_passport, suffixed if that name is taken) in which tax_credits_applicable_income is set to 0, and removes the branch afterwards. It reads the branch's Pension Credit through its population, so a microsimulation returns an unweighted array. Where the passport holds, the simulation's own WTC, CTC and Pension Credit equal the branch's. So the model never shows a passport alongside nil Pension Credit. The third row is the only case in which Pension Credit is paid without the passport. It needs WTC, since CTC is not Pension Credit income.

Side effects of the rule:

• Guarantee-credit-only claimants with WTC. Pension Credit withdraws £1 for each £1 of WTC, so the passport moves money from Pension Credit to WTC without changing the total. Pension Credit can't fall below nil, and the rule only passports where it stays payable. A claimant who also gets the savings credit can gain, because the model's savings credit can rise with WTC (below); review r2 found one gaining £158.67.
• Savings credit claimants. The model's savings credit can rise with WTC (above), so their total can rise.
• CTC. It is not Pension Credit income, so lifting the test raises CTC with no offset.
• freeze_pension_credit. With Pension Credit frozen at its baseline, it no longer responds to WTC. A third-row family can then be passported under the reform, so WTC rises although Pension Credit is held fixed. This is consistent with the freeze, but it is a change to tax credits.

Years with no awards. From 2025-26, gov.dwp.tax_credits.active is false and every tax credit is nil, so the passported and income-tested states coincide. pension_credit is read directly, with no branch. To keep that free of a cycle, wtc_entitlement returns nil before reading the income test when tax credits are inactive. Its value is unchanged: it was already nil through tax_credits. A Pension Credit recipient's tax_credits_applicable_income is therefore 0 in those years too. That keeps the variable's meaning the same in every year; no amount changes.

Cost. The branch is created only in years with awards (2024-25 and earlier), so runs for 2025-26 onward pay nothing.

In 2024, measured on a copy of the Enhanced FRS (/usr/bin/time -l, separate processes, base 200a1cdc4 against f2eb82445; the passport code has not changed since):

2024 run	core	Time, base → branch	Peak RSS, base → branch
household_net_income, then marginal_tax_rate	3.32.9 (the lock)	1.4 → 1.8 s, then 2.4 → 2.7 s	3.35 → 4.15 GB
labour-supply reform (elasticities 0.25 / -0.05, personal allowance £13,070)	3.32.9	10.7 → 10.0 s	5.13 → 7.67 GB
the same reform	3.32.12	7.5 → 8.0 s	5.10 → 5.15 GB

The memory comes from core 3.32.9 deep-copying every cached array into each branch. The labour-supply and marginal-tax-rate branches each create a passport branch of their own. policyengine-core 3.32.12 includes PolicyEngine/policyengine-core#556 (branches share arrays and copy on first read), which removes the extra memory.

• Require policyengine-core 3.32.12, whose branches share cached arrays #2054 raises PE-UK's floor to policyengine-core>=3.32.12 and relocks; once it lands on main, merging main here removes the extra memory from the locked environment too.
• The labour-supply rows measure the cost of running the branches, not labour-supply results. The Require policyengine-core 3.32.12, whose branches share cached arrays #2054 work reports that intensive-margin labour-supply responses are currently zero on main for every reform, with the baseline measured on a branch of the reform simulation; that is tracked separately.
• This PR's impact numbers use no labour-supply responses.

Changes

• tax_credits_current_year_income (new): the tax credit income before the passport (TCA 2002 s.7(4); SI 2002/2006 reg 3), moved out of tax_credits_applicable_income unchanged.
• tax_credits_applicable_income: that income, or nil while a prescribed benefit lifts the test. It now includes the Pension Credit passport (reg 4(1)(d)), with the reasoning above in a docstring. Comments record why the reg 4(1)(a)-(b) exceptions and reg 4(2) are not modelled.
• meets_child_tax_credit_criteria_for_targeted_childcare_entitlement and meets_working_tax_credit_criteria_for_targeted_childcare_entitlement test tax_credits_current_year_income against £16,190.
  • On the base they read the tested income. That was already nil for IS, JSA and ESA families, but harmlessly so, since those benefits qualify for the offer in their own right.
  • The Pension Credit passport would have let a savings-credit-only family through. The regulation names only "the guaranteed element of state pension credit", so that family has no other route.
• wtc_entitlement: returns before the income test when tax credits are inactive (no change in value).
• New parameter gov.dwp.tax_credits.means_test.pension_credit_passport: false from 6 April 2003, true from 26 November 2003. It records the commencement and lets a reform switch the passport off.

Invariants (property-tested, Hypothesis)

For any family of one or two adults aged 40-90 (mixed-age couples included) and up to two children, with earnings, hours, State Pension, private pension, savings, WTC and CTC claims, Pension Credit take-up and income-related ESA:

1. Differential. In 2024-25, the passport holds exactly when an independent simulation, with tax_credits_applicable_income entered as 0, pays Pension Credit. Otherwise the applicable income equals the value with the parameter switched off.
2. Consistency.
   • Where Pension Credit gives the passport, the simulation's own WTC, CTC and Pension Credit equal the passported simulation's.
   • Where it does not, they equal the values with the passport switched off.
3. No harm. Lifting the test never lowers WTC or CTC.
4. Third row only. Pension Credit is paid without the passport only where the passported WTC exceeds the income-tested WTC. So a family with no WTC is passported whenever it gets Pension Credit.
5. Order. Results are the same whether Pension Credit, the income test or household net income is requested first. No passport branch is left, at any depth.
6. No-award years. In 2025-26 tax credits are nil, Pension Credit equals its passport-off value, and the test is lifted exactly when Pension Credit is payable, with no cycle.
7. Childcare. A met tax credit criterion for the two-year-old offer implies gross income within £16,190.

Property 1 checks the branch against the same rule computed outside the formula. So it catches stale or leaked caches, but not a wrong rule; the YAML cases check the rule against the law.

Unit tests:

• the passport under tracing, and nested inside the marginal tax rate's own branches;
• in a Microsimulation, results match a Simulation, and the helper returns an unweighted array.

Income-related ESA is drawn only below State Pension age.

Tests

YAML: 10 cases in tests/policy/baseline/gov/dwp/tax_credits_pension_credit_passport.yaml, each computed by hand from the law and that year's rates, with the arithmetic in comments:

1. guarantee credit with WTC: passported, with the maximum WTC counted;
2. 2018-19: guarantee credit with WTC, passported;
3. the third row;
4. a pensioner with no Pension Credit;
5. unclaimed Pension Credit;
6. the savings credit alone, with CTC;
7. the same couple with a grandchild aged 2: not eligible for the two-year-old offer, because gross income is £20,200. Their CTC is £3,455, with no family element: that needs a child born before 6 April 2017 (CTC Regs reg 7(2)(a));
8. a mixed-age couple, with the older partner working the WTC hours;
9. 2025-26 with no awards, using the statutory £227.10 standard minimum guarantee (SI 2025/295 art. 29(2)(b));
10. the parameter switched off.

Four intermediate values the model gets wrong for unrelated reasons are entered at their statutory amounts, with comments:

• Pension Credit earnings net of the SPC Regs Sch VI para 5 disregard (Pension Credit income still omits IIDB, SDA, the AFCS guaranteed income payment and other countable income #1954);
• the CTC family element: £545 for a child born before 6 April 2017, nil otherwise;
• the 2025-26 standard minimum guarantee, £227.10 a week, where the model has £221.85 (Pension Credit income omits Carer's Allowance; 2025-26 minimum guarantee values may be wrong #1937);
• no Schedule IIA child amount for a tax credit recipient (SPC Regs reg 6(6)(d), (11)).

Each pensioner has £300 of savings interest. That makes the model's tax credit income equal the law's, which puts State Pension in step one with the £300 disregard (SI 2002/2006 regs 3, 5(1)(a)).

On the base 200a1cdc4, 6 cases fail and 4 pass (yaml_on_base_r2):

• the passport cases (1, 2, 6, 9) fail on value;
• the childcare case (7) fails because its new variable is missing;
• the switched-off case (10) fails because the parameter is new;
• the four no-passport cases pass on both.

On the first version of this PR (28eb7d2d4), the reviewer's probe of case 7's household was eligible, which was wrong.

Hypothesis: test_tax_credits_pension_credit_passport_properties.py has 6 tests: 3 properties (20 derandomized examples each), 2 unit tests (tracing and nesting; Microsimulation) and a coverage test.

• In a derandomized draw of 60 examples of the same strategy (236 families), 55 are passported through Pension Credit (11 with WTC raised) and 1 is a third-row case. No random family has CTC raised.
• So the YAML households also run as explicit @examples of every property, and test_yaml_families_reach_every_case checks they hit each case.
• All passed on 28eb7d2d4; the explicit examples and the coverage test pass on 284434ffc.

Full suites on 49e6a51aa: YAML 1,587 passed; pytest 2,086 passed, 45 skipped. Earlier heads also passed: 284434ffc (YAML 1,575; pytest 2,057 passed, 45 skipped) and 29891b0b5 (YAML 1,577).

Enhanced FRS impact

Real Microsimulation runs on a private copy of the Enhanced FRS 2024-25 (sha256 e433e532…), base fc1ff55d1 (#2027's current head) against this branch at 49e6a51aa, years 2024-2030. Both trees were clean. Earlier pairs gave the same results: base 200a1cdc4 against 284434ffc, and against f2eb82445. Tax credits are paid only in 2024 in the model; from 2025 the scheme is inactive.

Money: £0 in every year. All 103 arrays were compared: benefits, household totals including gov_spending and hbai_household_net_income, and poverty rates. The only arrays that change are:

• tax_credits_applicable_income, now nil for Pension Credit recipients: 2,097 benefit-unit records in 2024, about 1.7 million weighted, 382 of them on the savings credit alone. It changes in every year, but tax credits are nil from 2025, so no amount moves.
• In 2024, the two childcare tax credit criteria: the CTC criterion turns false for 4 records (93 weighted benefit units) and the WTC criterion for 2 (140).
  • All six are families on IS, JSA or ESA. They are now tested on gross income instead of the passported nil.
  • None was or is eligible for the offer, and targeted_childcare_entitlement_eligible changes for nobody.

Why no amount changes in 2024.

• 306 benefit units claim tax credits (124 with an award). Only 8 of them have a claimant or partner over State Pension age, and only 2 have both.
• The 6 with an award and an older member are mixed-age couples. On this base they cannot get Pension Credit (s.4(1A), no art. 4 saving).
• No tax credit claimant has a Pension Credit entitlement, so no family has both Pension Credit and tax credits. No case on the third row or the model-only fourth row arises.
• With Date the mixed-age couple Pension Credit exclusion and model the SI 2019/37 saving #1940's art. 4 saving, those six mixed-age couples are the ones that could gain.

The H5 inputs and per-record arrays stay private; the summaries above are aggregates.

Axiom

axiom: TheAxiomFoundation/rulespec-uk#419 queued

TCA 2002 s.7 and SI 2002/2008 reg 4 are not in the corpus (checked axiom-corpus origin/main 2c86dc9af: TCA s.8 and SI 2002/2008 regs 7 and 9 are, as discovery entries), so the encoder path is blocked. rulespec-uk encodes SPCA 2002 ss.1-3 and SPC Regs reg 15, but s.1 defers Pension Credit entitlement. #419 holds the verbatim law, the required outputs, a pasteable review_finding and eight companion tests. Tests 1-6 come from this PR's YAML; tests 7-8 (commencement dates and the reg 4(2) run-on) are law-only. It is linked from #416, whose tax credit item now defers to it.

The childcare change reads SI 2014/2147 reg 1(2)'s tax credit limbs on gross, pre-passport income. TheAxiomFoundation/rulespec-uk#400, which queues that regulation's Universal Credit route, is extended in a comment with:

• the two tax credit limbs, verbatim;
• their dates (WTC limb from 8 September 2014, CTC limb from 1 April 2018, both omitted from 1 January 2026);
• the pre-passport reading;
• three companion tests.

Related and follow-ups

• Date the mixed-age couple Pension Credit exclusion and model the SI 2019/37 saving #1940 (mixed-age saving): once merged, protected mixed-age couples get the passport through pension_credit.
• Pension Credit income still omits IIDB, SDA, the AFCS guaranteed income payment and other countable income #1954 lists the savings credit's qualifying-income exclusions (reg 9(a) excludes WTC) and the Sch VI earnings disregards, which change PC(W) but not the rule here.
• WTC 30-hour element is CPI-uprated instead of using the 2024-25 rate #1759: the WTC 30-hour element.
• WTC eligibility pools the age, disability and hours conditions across a couple (WTC Regs 2002 reg 4(1)) #2042: WTC eligibility pools the age, disability and hours conditions across a couple (found in review).
• Pension Credit income omits Carer's Allowance; 2025-26 minimum guarantee values may be wrong #1937: the model's 2025-26 Pension Credit minimum guarantee.
• Queued separately: SPC Regs reg 6(11) (no Schedule IIA child amount for a tax credit recipient, which the model pays alongside CTC); the CTC family element, which the model CPI-uprates past its frozen £545; and State Pension in step one of tax credit income.

🤖 Generated with Claude Code

[MaxGhenis]

The case "The passport does not bring a family under the childcare gross income limit" (tax_credits_pension_credit_passport.yaml, line 244 at 29891b0b5) has a grandchild aged 2 in 2024-25, so born after 6 April 2017. CTC Regs 2002 reg 7(2)(a), from 6 April 2017, pays the family element only for a child or qualifying young person born before that date. So in law the CTC is the £3,455 child element alone, not CTC_family_element: 545 and child_tax_credit: 4_000. The passport and childcare outcomes the case tests are unchanged.

#2057 (stacked on this) had copied the same input and now enters CTC_family_element: 0 with child_tax_credit: 3_455. #2051 adds the born-before-2017 rule to the model. The case at line 194 (grandchild aged 10) is right as it is.

🤖 Generated with Claude Code