Under new arrangements that come into effect from October, the Department of Social, Community and Family Affairs will exempt savings of up to £10,000 (#12,697) per person when assessing non-contributory pension entitlement.

This is a substantial increase on the current capital limit of £2,000 for a single person and £4,000 for a married couple before non-contributory pension payments are affected.

A survey carried out last year by the department indicated that nine out of 10 pensioners have savings of less than £10,000, implying that, under the new system of capital assessment, the majority will not incur any reduction in their State non-contributory pension due to having savings.

The new arrangements will cost the Exchequer £5 million and include a tapering arrangement whereby capital between £10,000 and £20,000 will be assessed on the basis of £1 weekly means for each £1,000 of capital.

This rises to £2 weekly means for each £1,000 between £20,000 and £30,000 and £4 weekly means for each £1,000 for capital over £30,000.

Those thresholds will be doubled in the case of married couples. The change will mean a real increase in entitlement for small savers. A single person claiming old age non-contributory pension with savings of £15,000 is currently assessed with weekly means of £18.75.

The new system will reduce the weekly means assessment to £5, resulting in an increase of £13.75 per week in the pension.

Concerns had been expressed that the assessment rates under the existing system bore little relation to returns currently available on deposits.