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Lump sum from pension
Morning,
Just been talking to a client who has been given contradicting information.
Basically, he has got figures for a private pension he is now able to claim. He’s been told he can take some of it as a lump sum which would obviously reduce his retirement income or he can not have a lump sum and have a higher pension.
He is concerned about if he took a lump sum, how it would be treated for Pension Credit purposes - would it be treated as capital or would it be calculated and treated as a weekly income. He’s spoken to two people and has been told two different things!
He’s looking for definitive advice before he makes the decision and ideally wants something in writing. I’ve had a quick look through the Pension Credit Regs and can’t see anything. Anyone got any ideas where I can find official written guidance on this?
As always, any help or advice would be gratefully received
Cheers
John
Section 15(1) of the SPC Act and reg 15 of the SPC Regs define income for SPC purposes.
Basically anything not listed is capital and therefore subject to the deemed income from capital rules.
The lump sum would therefore be capital as it is not listed as income.
DWP leaflet ‘State Pension Dererral - Your Guide’ states ; ‘if you choose to take a lump sum payment it will be completely ignored when we work out any Pension Credit, Housing Benefit & Council Tax Benefit even though your savings normally affect how much benefit you receive’.
That is a state pension - it required a specific disregard. So capital payments from ptivate pensions, which don’t have the advantage of a specific disregard, are counted for working out deemed income from capital.
Lump sums from private and occ pens are treated as capital for PC purposes.
Pete Jayes
Benefits Worker - former Older Persons Outreach Worker/Home Visitor.
Corby CAB.
Thank you all for your advice, much appreciated
Have a good weekend all
Cheers
John
On the same issue so not wanting to start new topic…........
Have a female client who is 60 next week.
Is on Income support on grounds of disability. Will not qualify for Pension Credit for a few more years.
Thing is she now has options sent for Occupational Pension….....take it now (lump sum and weekly pension) or defer until 65 (higher lump sum and weekly pesion).
She wants to defer…..BUT CAN SHE??????
Will DWP apply notional income rules and assume she has this income???
Is she obliged to inform DWP she has this choice???
This will be an increasing problem in coming years with the discrpency between occupational pension and state pension/pension credit qualifying ages.
On the same issue so not wanting to start new topic…........
Have a female client who is 60 next week.
Is on Income support on grounds of disability. Will not qualify for Pension Credit for a few more years.
Thing is she now has options sent for Occupational Pension….....take it now (lump sum and weekly pension) or defer until 65 (higher lump sum and weekly pesion).
She wants to defer…..BUT CAN SHE??????
Will DWP apply notional income rules and assume she has this income???
Is she obliged to inform DWP she has this choice???This will be an increasing problem in coming years with the discrpency between occupational pension and state pension/pension credit qualifying ages.
Not had a chance to look this up properly but for PC she can defer, the notional income rules will apply if she does defer, and has a responsibility to inform the DWP of the option.
Can’t see this being any different for IS.
CPAG Welfare benefits and tax credits handbook p 906 states that the deprivation rules do not apply if you are under the qualifying age for Pension Credit.
The DMG says for those over PC age: Occupational pension schemes - notional income
85453 A claimant who has reached qualifying age for State Pension Credit and has entitlement to an occupational pension but who has elected to defer payment should be treated as possessing the amount of occupational pension he could expect to
receive if he applied for it (1), but only from the date it could be expected to be acquired if a claim was made.
1 SPC Regs, reg 18(1D)
Example
Asif belongs to an occupational pension scheme. The retirement age for the scheme
is 60. However, it is possible to defer drawing the pension for four years after this
age in return for receiving a larger income. It is also possible to apply for the
occupational pension from the age of 55 but payments would be made at a reduced
rate.
Asif decides to take his payments at the age of 60. The DM decides that Asif has not
deferred payment of his occupational pension because he has taken the pension at
the retirement age for the scheme.
Going off on a slight tangent:
My client had reached the retirement age for his private pension scheme but elected to defer for further 4 years in order to obtain larger income. PS took the current pension payable as notional income. So far, fair enough. However, my client, on the presumption he decides to access his pension now, has a choice of additional options involving various lump sums and reduced annual pension income. If he decides to take one of the lump sum options how will PS treat the reduced ongoing pension payments? Can they argue that client has deprived himself of income by taking a lump sum option and include pension income at the same rate as currently (as well as taking tariff income from the capital)?
CPAG Welfare benefits and tax credits handbook p 906 states that the deprivation rules do not apply if you are under the qualifying age for Pension Credit.
The DMG says for those over PC age: Occupational pension schemes - notional income
85453 A claimant who has reached qualifying age for State Pension Credit and has entitlement to an occupational pension but who has elected to defer payment should be treated as possessing the amount of occupational pension he could expect to
receive if he applied for it (1), but only from the date it could be expected to be acquired if a claim was made.
1 SPC Regs, reg 18(1D)
Example
Asif belongs to an occupational pension scheme. The retirement age for the scheme
is 60. However, it is possible to defer drawing the pension for four years after this
age in return for receiving a larger income. It is also possible to apply for the
occupational pension from the age of 55 but payments would be made at a reduced
rate.
Asif decides to take his payments at the age of 60. The DM decides that Asif has not
deferred payment of his occupational pension because he has taken the pension at
the retirement age for the scheme.
This is pretty horrific, if I’m reading it right. Someone defers their pension, the regs state that they’re treated as having it, even though they’re not getting it yet. But when they do get it, at the increased rate, the actual rate they’re receiving is taken into account. Does that strike anyone else as dual accounting? The money is being taken into account twice, once when it could have been received, and once when it actually is received. Or am I missing something?
Going off on a slight tangent:
My client had reached the retirement age for his private pension scheme but elected to defer for further 4 years in order to obtain larger income. PS took the current pension payable as notional income. So far, fair enough. However, my client, on the presumption he decides to access his pension now, has a choice of additional options involving various lump sums and reduced annual pension income. If he decides to take one of the lump sum options how will PS treat the reduced ongoing pension payments? Can they argue that client has deprived himself of income by taking a lump sum option and include pension income at the same rate as currently (as well as taking tariff income from the capital)?
Had a couple of these in the past.
In my experience the PS always deal with what is - taking the pension as paid as income and applying any tariff income from capital if relevant.