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Treatment of Pension Pots after April 2015
From this April people over the age of 55 will be able to withdraw some or all of their private/occupational pension pots, and do anything they want with the money (including buying a Lamborghini according to the pensions minister). This raises the prospect of feckless pensioners blowing their pension pots in the belief that they can fall back on means tested benefits when it has all gone, or simply under-estimating their future life expectency. What view will the DWP take of this? I think I have read somewhere that they will treat funds drawn from the pension pot as notional capital, but there could be very good non-benefit realted reasons for doing it, eg to pay medical bills, help a homeless relative into a property. On the other hand, if a person leaves their pension pot invested will the DWP treat it as capital anyway because it can now be converted to cash on application, instead of being used to buy an annuity?
I think I have read somewhere that they will treat funds drawn from the pension pot as notional capita
No. If someone is over QASPC then the available funds in their pot will be treated as producing a notional income at GAD rates.
Any money paid regularly will be treated as income and money drawn down by the claimant will be capital.
Have a look at http://blog.cix.co.uk/gmorgan for some illustrations of the issues.
Gareth - I’m afraid I rather got lost about half way through the blog! Could you please clarify:
1. I believe the present rule is that if someone claims PC and they have a pension pot but have not taken an annuity the PC amount will be reduced by the amount it is calculated (assumed?) the pot would pay out if the annuity was taken.
2. If I’m right, will this rule still be in place after the April pension reforms? If it is, then it seems to me that anyone who gets to PC age and wants to keep their pot so they can draw down capital as and when they need it will either have to accept a reduction in their PC amount, or not claim PC.
Apologies if I’ve got this completely wrong. Your post above says that funds in the pot will attract notional income from SPC age (65). Does that imply they won’t attract any deduction from GPC age up to SPC age?
1. I believe the present rule is that if someone claims PC and they have a pension pot but have not taken an annuity the PC amount will be reduced by the amount it is calculated (assumed?) the pot would pay out if the annuity was taken.
Yes, normally using the GAD table amount.
2. If I’m right, will this rule still be in place after the April pension reforms? If it is, then it seems to me that anyone who gets to PC age and wants to keep their pot so they can draw down capital as and when they need it will either have to accept a reduction in their PC amount, or not claim PC.
Apologies if I’ve got this completely wrong. Your post above says that funds in the pot will attract notional income from SPC age (65). Does that imply they won’t attract any deduction from GPC age up to SPC age?
Pension Credit age (QASPC) which is 62 and a half.
Gareth - Sorry. I thought QASPC meant qualifying age savings pension credit (i.e. 65). As it apparently means GPC what does the S stand for please?
Gareth - Sorry. I thought QASPC meant qualifying age savings pension credit (i.e. 65). As it apparently means GPC what does the S stand for please?
State
Thanks for your reply Gareth. Regarding the notional income from money left in the pension pot, where can we find the GAD rates? What sort of annuity is the “notional annuity” eg Lifetime or fixed term, single life or joint life, fixed income, escalating income or investment-linked income, taking into account health/lifestyle. When a lump sum is withdrawn form the pot and then spent, am I right in thinking that the current rules on deprivation of assetts will apply?
did you see HB Circular A4/2015 that we published to the news area on Friday?
... with a month or so to go, it says that the DWP are still -
‘... looking at the impact of the new pension flexibilities and will decide whether any changes need to be made to the regulations in the light of this [and] will provide more information on this in due course ..’
I have been looking through the DMG on this and just wondered how it might effect one of my clients. He claimed Pension Credit in 2014. He is below State Pension Age. At the time he informed the Pension Service in writing that he has a pension Pot of £40k. He provided evidence that the Pot has a ‘Vested date’ of 2017. The claim was then processed on the basis that the pot was disregarded for both the purpose income and capital rules until 2017.
His circumstances have now changed and he needs to take out a lump sum from the pot. He is thinking around the £10k figure. He is seeking ‘advice’ about the implication of this from Pension Wise.
My concern now is how the £30k left in the ‘pot’ would be treated as it would now appear he has access to all of the pot at this stage. Would the rule changes now mean that he should be considered to have notional Capital, despite his vested/retirement date previously been accepted as being in 2017?
He should be treated as having notional income from the pot. See CPC/3971/2012 where Judge Turnbull held that a beneficiary could ‘fail to purchase an annuity’ with ‘funds available’ from a personal pension scheme where this was an available option, even though he had not reached his chosen retirement age.
On that basis, assuming that he’s 64, there should be a notional income of £30.49 a week from a pot of £30,000 on today’s rates according to our notional pension reckoner. If he took the whole £40,000 as capital then, using our pension Forward system, he would, after the 25% tax free element is taken into account, end up with £36,120.04 (assuming no other taxable income). That would generate £53 a week in tariff income, which becomes £22.51 a week after offsetting the notional income.
This is a good example of the way in which pensions are becoming increasingly important bits in benefits advice. I’m doing a workshop at NAWRA next month on some of these issues.
I’ve had a call from a client aged 56 with a small Remploy occupational pension.
He says he keeps getting calls from people “about his pension” and doesn’t know why. The client has a learning disability and I’ve explained to him that these are likely cold calls trying to buy/sell his pension for him and that it would affect his benefit.
I’m really concerned about companies going down the lines of PPI trolling for work when it could potentially have huge repercussions.
There are reports that over half of those aged over 55 have been cold called by people trying to get them to take their pension early (and presumably invest in fine wine, Ferraris and black tulips. This separate from the scams offering pre-55 release of pensions.
I’m not even 55 yet (no, really) and I’ve had 2 mailshots and a few cold calls about my pensions…..