A client has a With Profits Income Bond that provides life insurance for both he and his wife. On death it will mature and pay £30000 minimum (more if the units accumulated are worth more than £30000) He invested £30000 in this product and it provides a monthly income of £125. Because of falling returns, some of the accumulated units in the bond have to be sold each month in order to produce the monthly income. This diminishes the amount of capital in the bond. The value of units accumulated in the bond is now around £30000 and falling every month by about £50.

DMG para 29403 says that an investment that includes life insurance should be disregarded if it would produce less than the insured amount if surrendered. Is there a similar provision under Pension Credit?

My client and his wife are reluctant to surrender the bond as new life cover would be very expensive.

If they claim Pension Credit, will this investment be treated as capital, and if so what will it's value be?

Any help gratefully received.

Oh well, Shona, I've been putting this off, but I'd better tackle it! There is indeed a similar provision in Pension Credit - the life-related investment bond is disregarded as capital on the grounds that it's a life insurance policy (PC Regs Schedule V para 10, which mirrors IS Gen Regs Sch 10 para 15). DMG 84408 has pretty much the same wording as DMG 29403, though it has no reference to CD R(IS)7/98. I would consider the latter decision binding on PC, however. because PC is a successor benefit to IS for older people and the wording of the provision is the same.

That just leaves the capital draw-down element that your client gets - you say it's about £50 pcm. If this were IS, then following R(IS)7/98 this capital would be treated as income. In the PC Act (s. 15(6)(d)) there is a provision for prescribing circumstances in which capital is to be treated as income, as can happen in IS. But, so far, there seems to have been no such prescription in the PC Regs. So, I think the £50 pcm is simply capital being moved out of an area where it's disregarded (the investment bond) to one where it isn't (your client's bank account). Of course, if it gets spent on living expenses, it won't make much difference to the accountable capital your client has!

Conclusion (assuming the capital wasn't put into a bond to facilitate a PC claim): the bond and payments from it will be effectively ignored for PC purposes.

Jim

Thanks for that - it's brilliant news!!

I guess that there will be a number of pensioners for whom this will compensate in some way for the loss of value of their investments.

You're a treasure - haven't failed me yet!!!

Many thanks

Shona