Purchasing an annuity while on means-tested benefits

I’m helping someone under 55 with a different appeal, and they contacted me to advise that her late husband’s pension provider has been in touch, with the unexpected news that she is due a lump sum well over capital limits.
Currently on IRESA and HB/CTS.  Impact of capital on benefit claims explained in detail.
She took pension advice from a reputable provider, and it was suggested she would have the option of purchasing a fixed term annuity with the money. 
I’m concerned that DWP could make a notional capital decision, and haven’t found anything to reassure me that this would not be the case.  I do get a bit foggy in the head when people start talking about annuities, though.

Any thoughts?

Surely it would simply be the case that the annuity is taken into account as an income?

Why a fixed term annuity?  That sounds like it would provide a higher income than a life annuity, which would impact means tested benefits more.  What kind of sum is involved?

Paul_Treloar_AgeUK - 18 January 2021 02:09 PM

Surely it would simply be the case that the annuity is taken into account as an income?

I think the issue is whether giving away the large capital sum in order to buy the annuity would be seen as deprivation of capital. If it is the claimant will lose all of their means tested benefits if that sum is more than £16,000 and be thrown back on the annuity only - which I’m guessing will not be all that much.

I don’t know the answer though - although I fear it’s the one you don’t want to hear.

Robbo, is this as a result of husband’s death?

Thanks for the replies.  Yes, she was bereaved at the end of last year.  Capital sum is approx £50k.  I’m not sure why fixed term annuity is preferable, but she indicated that the policy she had in mind would pay a lump sum in the event of her own demise - I don’t know if this is something more likely on a fixed term arrangement. 
She has never worked due to health issues, and barring unexpected medical breakthroughs, does not expect to be able to in the future. 

If the only way she is able to access the capital is by purchasing an annuity, then I can’t see the problem.

If she has the option to take a lump sum or purchase an annuity, then I suppose they could look at deprivation of capital but there is a good argument that she hasn’t disposed of it in order to increase her entitlement (because obviously it actually reduces due to the income). As such, the key question is, did she buy the annuity for “the purpose of securing entitlement to an employment and support allowance”

I’d say that as the client has approached a reputable financial adviser and been advised that buying the annuity is a sensible option, there’s an argument that she hasn’t done this to secure entitlement to ESA, she’s done it to provide herself with a sustainable long-term alternative source of income (although Gareth’s point about it being fixed-term is an interesting one and probably something to go back to the IFA to ask about). IFA’s are also supposed to explain the impacts of their advice on benefit entitlement, although I think that can be variable in it’s accuracy.

I’m also wondering whether she can argue that para.29 of Sch.9 of the ESA Regs could be held to apply (CAPITAL TO BE DISREGARDED

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

Thanks Paul, good points taken on board, and there would definitely be a good argument to make out.  From her point of view, of course, it must be frustrating that there does not appear to be a defined answer for her proposal - if she goes ahead she could still fall foul of the decision maker/tribunal, which would be a fairly disastrous outcome.