Taking pension cash free lump sum

[panicstation]

Please could someone give me a steer.

My partner has just hit 55 and can take about 15k cash free lump sum from his personal pension pot.

I recently had an accident and broke my back. We are on ESA and I get PIP and Housing Benefit.

He would like to use about 4k of the money to renovate a barn that would allow me to work from home and he wants to buy a small second car so I am not stuck if he isnt here - we live quite remotely. He'd also like to go on holiday as we havent had one in 7 years. Im trying to get him to just hold on for a minute.

We know the cut off is 16k and they will take about £35 a month from us against our savings on ESA - I don't know about housing benefit.

Also if he then spends say £7k and and the savings go down over a month to £8k do they then look at your expenditure and tell you off if they dont agree with it?

His IFA has advised him he can take it in £5k chunks. Spend it and then pull down the next one.

We've now had a huge row about it and Ive told him Im not getting involved.

Any ideas?

[Kati]

Re: Taking pension cash free lump sum

tagging [MENTION=85500]Peridot[/MENTION] [MENTION=141]enaid[/MENTION] ??

[Wylderose]

Re: Taking pension cash free lump sum

I assume that both you and your partner are receiving Income based ESA. If that is the case then the lump sum would need to be declared to both the DWP and your local authority as Housing Benefit and ESA IR are both means tested.

Your PIP will not be affected as this is not means tested and PIP is there for your care and mobility, regardless of whether you work or not or how much money you possess.

For ESA IR any capital that you possess above the lower limit of £6000 would be assessed and a capital deduction taken on a weekly basis against your ESA. If your capital (lump sum from your husband's pension, savings and money you hold in bank accounts) is over £16000, you would no longer be entitled to ESA or Housing Benefit.

For Housing Benefit point of view if you receive ESA Income Related (Means tested) then any capital that you hold will not normally be counted on your Housing Benefit claim as the DWP will assess your capital and make any capital deduction that is required from your ESA.

If however you receive ESA Contributions based, then the capital will be included as income on your Housing Benefit claim. If you hold capital of £16000 or over, you would not normally qualify for housing benefit. From a council tax point of view if you hold capital over £10000 you will not be eligible for a Council Tax reduction.

You can still receive housing benefit and council tax support if your capital is between £6000 and £10000. A tariff income calculation will reduce the amount of benefit you will receive by £1/week for every £250 over the £6000 lower limit that you hold.

That said, no-one will tell you how you can and cannot spend your money. To safeguard yourself always keep receipts for any large amounts that you spend, especially if you go on holiday or buy a car or furniture or such like. Don't give money to relatives. That is regarded as Deprivation of capital and the capital value will be kept on the claim. Always keep bank statements as well so that you can show where the money has gone and if the capital reduces, ask the DWP to reassess your capital as the tariff income will also reduce, thereby entitling you to more benefits. Likewise update Housing benefits with your bank statements too as the DWP will not update them.

I am sorry about the length of the post and I hope this helps you.

[panicstation]

Re: Taking pension cash free lump sum

Hi there. Today we went to the CAB for some advice and I don't know who to believe really. Im so confused.

The CAB advised not to take the cash sum all at once and talked about what you have said above. He doesn't have the money, its just he can take the tax free part anytime now if he wants to.

At CAB they said the best way was to take it in £5k chunks so that the bank balance never goes above £5k and then the tariff income doesn't apply. They also said that they can decide if the money has been spent appropriately. So what you think is OK they might say isnt ok and apply the deprivation of capital rules. For example if you bought a £3k car when you can get a car for £500 and have no good reason for buying a more expensive car they would keep your capital at £2.5k higher, so notional savings and so a higher deduction would be made.

This is the first time in my life, Im 45, Ive ever been on benefits. Up until now Ive been a 40% tax payer. Im having visions of doing something wrong and ending up in prison. My husband is very cross that he paid into a good pension scheme and went without the money in his younger days only to be penalised for it now.

[Wylderose]

Re: Taking pension cash free lump sum

It is always tempting to take the money early. What you need to do is to sit down and weigh up the pro's and con's of doing so. For example: if you receive PIP mobility (high), whether it is worth your while buying a car that will depreciate and require maintaining or getting one on motability that is maintained for you.

Can I clarify something. I assumed from your previous post that you are on ESA Income Related, but you say that until now you have been a 40% tax payer. Are you on Contributions based ESA (based on the national insurance contributions you have made over the years), and are you in the Work Group or have you been placed in the Support Group.

Contributions based ESA is not means tested and therefore your capital would not be taken into account, but if you are in the work group, it would normally be paid for up to 365 days and reassessed for income based ESA. If you are in the Support Group, then there is no time limit for how long Contributions based ESA can be paid

If you are on Contributions based ESA though, the money you receive from DWP and also your capital would count on your HBen claim.

Just so you are clear on what Deprivation of capital is. Deprivation of capital is the deliberate reduction of capital in order to obtain benefits. That is why I said not to give your money to family or friends - it is always viewed as deprivation. Likewise don't place it into fixed term ISA's as the DWP will treat you as still having the money available to use to support yourself.

Deprivation of capital would not apply if you bought say a £3K car rather than a £500 car. It is your money and so long as you keep receipts to prove what you have spent it on you will be OK. Basically when looking at capital expenditure, all an assessor is interested in is "is the expenditure reasonable". If you have been living with the same old sofa for 10 years, the cats have used it as a scratching post and you want to replace it. Is that reasonable expenditure? Sure it is, just keep the receipt so if asked you can say "I bought a sofa for £xxx" and if asked to provide a receipt you can. If you want to spend on a holiday that's fine too. One thing to remember though is that the rulings changed in 2016 and if you are going to be out of the country or away from home for more than 4 consecutive weeks, your benefit could stop.

I see and assess people on a daily basis who are on benefits. People do not ask to be on Benefits, they usually end up claiming benefits because circumstances happen that mean that they have no alternative but to ask for help. It is a system that is full of do's and don'ts and can be very confusing and intrusive at times. However if every in doubt, ask at your local CAB, they have people who are quite up to date on the latest benefits regulations. Or alternatively ring your Local Council benefits section and speak to an assessor. They are there to help and advise - it is what they are trained and paid to do.

Not being a pensions adviser I cannot say whether or not you can draw down £5K sums or not, but what the CAB have said about tariff income not applying if your bank balance does not go above £6K is correct. £6K is the lower limit of capital that people can hold without it having any impact on benefits.

[panicstation]

Re: Taking pension cash free lump sum

Hi [MENTION=54329]Wylderose[/MENTION] - the CAB say that its treated as income not capital - which is different to what his IFA and you have said? He took a small pot this year and its come through as income on the tax credits renewal. Any idea's which is right? Thanks

[Wylderose]

Re: Taking pension cash free lump sum

I think your CAB adviser has advised you incorrectly. The money would be received as a lump sum ("one time" payment which would be deposited in the bank). It would not be treated as income because it is not a periodic payment like wages or pension payments that you would receive on an monthly ongoing basis. Because of the "one time" nature of the payment it is treated as Capital

Capital for the purposes of Benefits is defined as:
1. Savings (Funds/money held in bank, savings,, building society, post office and ISA accounts)
2. Investments (Stocks and shares)
3. Property (The sale value of a 2nd property that may be owned after payment of any legal and mortgage disbursements) - some people do own a property and for health reasons move into council owned accommodation and sell their own property

I cannot comment on tax credits as they are administered by HMRC (Inland Revenue). As I don't work for HMRC I don't have an insider knowledge of how they make their assessments, but it you contact Tax Credits, I am sure they will clarify things for you.