I have a client who is currently in reciept of ICB, IS, CB, CTC, HB, CTB and DLA higher care and mobility. She has taken early retirement on the grounds of ill health and has been offered 2 options for taking an early occupational pension.

The first option is a lump sum payment of approx £2500.00 and weekly payments of approx £70.00. With this option the capital would obviously not affect any benefit entitlement and although the weekly entitlement would mean that she would no longer qualify for IS, I have calculated that her overall income would be slightly higher than prior to the occupational pension being paid.

She also has an option of taking out a lump sum payment of up to £20,000 and her weekly pension then being reduced accordingly depending on how much she takes as the lump sum. She has debts that total approx £20,000, and if she did take this lump sum, the weekly amount that she would be left with would also leave her with an entitlement to IS. However, there is then the potential deprivation of capital issue for the purpose of her IS, HB and CTB.

CPAG p.948 describes deprivation of capital as deliberately getting rid of capital in order to claim or increase benefit - as my client is already in receipt of benefits would this make a difference. I understand also that the decision maker would have to prove that the client would not have used the money to pay off the debts anyway if benefits were not an issue. As it was us that pointed out the potential issue of deprivation of capital (the client was just going to go ahead and pay off the debt anyway and wasnt aware of any potential implications in terms of her benefits) I think that there may be a fair arguement in terms of her not just disposing the capital for the purpose of getting benefits, however, the potential financial loss if this wasn't to be the case (no entitlement to IS, HB or CTB if considered to have notional income over £16,000 plus a reduced weekly pension) is a big risk to take.

Does anyone have experience of any similar cases that could offer their opinion on the likelihood of how this situation would be treated?

Thanks in advance.

The correct legal test is whether or not, in the disposal of capital, there was a "significant operative purpose" to obtain (or increase) benefit.

Note that there must be a PURPOSE. But, also note that it does not have to be the MAIN purpose.

A selection of relevant CDs/UTDs includes:

CH/1261/2007
CH/1822/2006
R(SB) 38/95
R(SB) 40/85

In short, if the reasons for disposal of the capital do not include a significant operative purpose to get benefit, there cannot be any "notional capital".

and you are allowed to pay off debts.

...Is there not a distinction drawn between debts where payment is overdue and the lender is threatening legal action, and, for example credit card debts where paments are up to date? I seem to recall seeing at least one CD in the dim & distant past to that effect.

If you have a client who's only income is benefits, with debts of £20,000 plus it would be a tad suprising if they did not have repayment problems.....