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Forum Home  →  Discussion  →  Work capability issues and ESA  →  Thread

Sale of house, money from sale into pension fund? deprivation of capital?

ub40worker
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Hi all,

I have a 53 year old female on IR ESA she wishes to sell her house.

I know that they don’t count this as capital for up to 6 months if the claimant is going to use that money to purchase a new place. However what would happen if she downsized and put the money which she had left over/gained from the sale into her pension fund? Would this be classed as deprivation of capital?

And would the DWP consider this as notional income?

Normally I would think that they would however in this situation she would not be able to access the pension fund money until later.

Thanks

csmk
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It looks like the excess money on completion of the sale will be treated as notional capital. If the client has any left after a sale it should be taken into account as part of the client’s capital amount - CPAG, pg485. Under R(SB) 14/85 (as referenced in CPAG) money left over from a purchase set aside to renovate a home was counted as capital which would affect benefit entitlement.

Although regarding the money being placed into the pension pot I’m not sure. It’s mainly the intention behind how capital is spent. However, if the capital isn’t being used to repay debts or something similar, it might be difficult to show that client was doing this for the sole purpose of increasing the pension pot.

[ Edited: 29 Jan 2019 at 03:37 pm by csmk ]
csmk
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Ah wait, might be caught out by CPAG pg 493; HB&CT; guidance - BW1: Assessment of Capital - paragraph BW1.714

Paul_Treloar_AgeUK
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Interesting case. I’m not so sure it’s as clear cut about the deprivation decision.

We know that the value of a pension pot is specifically disregarded as a capital asset, as is the potential value of any payments from that pension pot.

Sch.9 Capital to be disregarded ESA Regs 2008

28. The value of the right to receive an occupational or personal pension.

29. The value of any funds held under a personal pension scheme

The funds invested in the pension pot haven’t gone anywhere, they are still a capital asset of the claimant, it’s simply that they are specifically disregarded under the regulations.

As such, how can DWP make a decison that the client has deliberately deprived themselves of a capital asset with the significant operative purpose of securing or increasing the amount of ESA to which they are entitled? They haven’t deprived themselves of anything, they have converted it into another kind of asset that is specifically disregarded.

Paul_Treloar_AgeUK
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By the way, please don’t take this as gospel, I’ve no idea how DWP might respond to someone doing this and it wouldn’t surprise me if they did make a deprivation decision.

There’s some commentary in Sweet and Maxwell on using capital assets to purchase personal possessions (which are also specifically disregarded) and it’s fair to say that Judges have made mixed decision in these type of cases.

Elliot Kent
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This is a conversation that was had fairly recently : https://www.rightsnet.org.uk/Forums/viewthread/12905

i.e. Does depriving yourself of one form of capital which is not disregarded and replacing it with a form of capital which is disregarded count as a deprivation?

(The answer is yes - it’s still a deprivation. See R(SB)40/85).

The actual use of the money is less important than the client’s motivations. The fact that you are having this conversation in the first place strongly suggests that your client is at least partly motivated by the prospect that the transaction would allow them to retain their benefits.

Paul_Treloar_AgeUK
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Thanks Elliot, I’d completely forgotten about that discussion.

Paul_Treloar_AgeUK
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I’ve had a read through R(SB)40/85 again and I still reckon there’s an argument to be made to be honest.

Let me collect my thoughts and will post something in next day or two.

Elliot Kent
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Look forward to it Paul. I will admit to not having read either the case or the thread in full for a while so it is quite possible that I am writing this off too hastily.

Paul_Treloar_AgeUK
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R(SB) 40/85, para.9 states Thus if a claimant uses cash to purchase, say, saving certificates, he does not reduce the value of his overall resources at all, and it could not be suggested that he had deprived himself of the cash for the purposes of securing, or increasing the amount of, supplementary benefit.

Using the excess resources generated by a house sale, whereby the client owns the new property outright, and invests that money in a pension fund falls squarely into those circumstances, in my opinion. Using the money to purchase a personal possession is a different kettle of fish as the money has gone and has been replaced by something that has a much more subjective value.

Similarly, paying off a mortgage or other debt sees this money vanish.  Putting the money into a pension fund simply means that rather than beng held in a bank account, it’s now in a pension pot. It still has the same value (indeed potentially a higher value over time) and with pension freedoms can be accessed from 55 years onwards, whereby it would either be treated as actual capital or income.

The fact that pension funds are listed as a specifically disregarded form of capital strenghtens that argument in my opinion, as demonstrating the government’s overarching intention to encourage people to invest in pensions whilst they are able to.

We then also have to consider that as soon as the client reaches state pension age, the situation reverses completely, in that the client either needs to realise those pension funds in some way, or otherwise they are deemed to generate a notional income based on an annuity. Effectively, she will reduce or even remove the amount of benefit that she will be able to claim at pension age.

Sorry that’s a bi rushed but hopefully makes some kind of sense?

Gareth Morgan
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Paul_Treloar_AgeUK - 30 January 2019 10:50 AM

R(SB) 40/85, para.9 states Thus if a claimant uses cash to purchase, say, saving certificates, he does not reduce the value of his overall resources at all, and it could not be suggested that he had deprived himself of the cash for the purposes of securing, or increasing the amount of, supplementary benefit.

Using the excess resources generated by a house sale, whereby the client owns the new property outright, and invests that money in a pension fund falls squarely into those circumstances, in my opinion.

Sorry but it isn’t the same thing at all.  Savings certificates aren’t disregarded in the way pension savings are for working-age claimants.  They’re taken into account (there’s not even a 10% disregard, as there are no costs of sale) so there’s no benefit’s effect.

Paul_Treloar_AgeUK
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Gareth Morgan - 30 January 2019 11:02 AM

Sorry but it isn’t the same thing at all.  Savings certificates aren’t disregarded in the way pension savings are for working-age claimants.  They’re taken into account (there’s not even a 10% disregard, as there are no costs of sale) so there’s no benefit’s effect.

The point isn’t about whether or not any particular financial product is disregarded or not Gareth, it’s that the value of the overall resources is entirely unchanged, which is demonstably not the case if the money is used to purchase personal possessions or pay off a mortgage (which is what was the primary focus of the rest of R(SB)40/85 was concerned with).

The fact that the value of a pension pot is specifically disregarded doesn’t take away from the point that there has been no material shift in the value of the asset as such.

Gareth Morgan
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Paul_Treloar_AgeUK - 30 January 2019 12:38 PM

The fact that the value of a pension pot is specifically disregarded doesn’t take away from the point that there has been no material shift in the value of the asset as such.

But there has in the value for benefit purposes.

chacha
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ub40worker - 29 January 2019 02:47 PM

I have a 53 year old female on IR ESA she wishes to sell her house.

Why does she wish to sell the house?

I think the answer to this would probably be most helpful.