I have a client whose savings reduce on a monthly basis because she pays for her care which she receives in her own home. Consequently her savings reduce by approx £500 every month. We inform the Pension Service who reassess her PC to take account of the reduction in her savings. However when my client recently sent her bank statements into the PS they noticed that she had had interest added and it has not been diregarded even though she has an AIP. When I queried this I was told that when savings are reassessed to take account of any reduction any increase in savings will be offset against the reduction. Is this correct?

How does anyone decide whether the money which is taken out of the account comes from the existing capital or the interest paid in?

That's a good point Gareth and one which I will put to the DM. The PS have since stated that cases where an AIP is set they cannot take an increase (non beneficial) in one type of capital in isolation where a decrease (beneficial) in another type occurs at the same time. They say they have to take account of both the increase and decrease.