notional income from occupational pensoin unclaimed

I have a client whho has just claimed PC but I was told tofday that as he can claim from a number of private pensions this potential income will be taken into account and reduce his PC, I asked by how much as there are numerous options as to how much he could claim weekly or as a lump sum and was told PC would be reduced by the maximum he could take as a pension. surely this is nonsense, please tell me its nonsense

Pension fund holders must provide the DM with information about
1. the maximum amount of income available from the pension fund and
2. the amount of income that would be available if the funds were held in a
scheme that produces an income.

That’s based on tables produced by the government AFAIK.

It’s going to become rather difficult with the pension changes announced in the budget and I’ve got a meeting with a DWP officer next week (at their request) to discuss the abolition of AIPs at which I was going to raise this.

There may be arguments for people to transfer their pension fund into really badly performing suppliers until just before they want to draw on their funds.

An exception to the max notional income having to apply is if your available lump sum is smaller than the trivial commutation limit, see reg 18(9) of the SPC regs. However, this might not be available here, as I understand that the value of all a person’s pension pots is added up, rather than a limit applying to each one. If a trivial commutation is available it is normally clearly described on the pension scheme paperwork.

thanks for your replies but is it the case that PC will be reduced by the amount a person could claim even if they have not done so ?

Yes.  See p 319 of CPAG handbook 2014-5.

Broadly - Yes.  Deferring pensions - past the normal age at which they would be paid - would provide a bigger pension later and it would be unfair to have PC subsidise that by providing a higher income now.

Motherwell pension service have suspended then ended two of my clients awards for not claiming their occ pensions.

HB has then been suspended. Total mess

I recently had a case where client was unaware his annuities were still available (he thought they’d been part of his bankruptcy), until informed by the Pensions Service.  He set up a meeting in early December to discuss options with the provider.  By that time he was having tests for suspected cancer.  The annuity rep advised postponing decisions until tests completed - Pensions Service did a notional income decision from the date of the meeting.

2 months later a very sheepish decision maker is apologising to the client - he had received a fairly substantial lump sum on the basis of terminal illness which reduced his PC entitlement so saving the Department about £70 per week.  Client would not let me interfere once he had his apology or I would have been recommending an appeal to get the December to February benefit back.

I have seen a few of these notional income cases recently and a fair part of the problem is that clients are often baffled by the options available and are pressured into making a decision about which option to take without good financial advice.  The consequences of a bad decision can be far reaching, particularly when you take into account what might be available to a surviving partner. 

I don’t have the knowledge about the whole annuities/pension provision world to provide it but a few clients have demonstrated to me that their decisions are far from always about benefit being received now - for example the client who was unmarried to their partner got good advice that his current provision would give nothing to the partner but could be cashed in and the money used to buy something that would give an income for life. 

It is not as simple as the highest income option must be taken to avoid notional income decisions, the Pensions Service must be able to show that what has been done or omitted was done or omitted in order to claim more PC.

I have just spoken to the pension sevice and askde what the situation is re taking a limp sum and a smaller monthly pension, I was told that the lump sum is capital and the monthly amount taken as income , AND that if the claimant takes a larger lump sum at the expene of a smaller monthly amount this is not taken as deprivation of income. the PC rules are at reg 18 but they seem to say that if a claimant fails to apply FOR AL of the amount he could get this is deprivation, does it mean all he could get as a monthly amount, which would suggest that claiming a larger lump sum is classed as deprivation of income.comments please

See reply #2 above - if the capital sum is within the ‘trivial commutation’ limit you do not have the difference between lower and higher income options treated as notional income.  I was unsure about what that limit was and tracked the legislation through at one point - silly thing to do as it’s in finance legislation and if I remember right was a formula of the sort that made me run from maths lessions!

Check the policy, but in my experience anything that is offered in these type of option assessments is well below the limit.

lump sum could be £15000 is this likely to be a trivial paymnet within the regs ?

I would think so - the one that made me look it up was about £65k.

The policy or the company offering it will tell you for sure as it isn’t just a straightforward figure if I remember right about that formula.

The trivial commutation limit was increased from £18,000 to £30,000 on the 27 March 2014 but this is the amount that you can take purely as capital.  The small pot taxed sum went up from £2,000 to £10,000 on the same date and you can now have three of them rather than two. There are different rules depending on whether you’re a member of a company or public pension scheme, or a personal pension scheme.

Remember three quarters of the lump sum is taxable and you must have no more than £30,000 in total in pension schemes.  There are complicated rules about how and when you have to value your pension pots.

How on earth would a client establishall this informationa and also how would the pension service be able to check it all. most clienst just want a simple answer, should i take a lump sum or a larger pension, this really does seem more complex than it need be and I am sure thepension service can’t have the facility todecide claims based on these rules

Whilst I’ve certainly known the PS to take unclaimed occupational/private pensions into account as notional income, I’ve yet to know them to quibble in relation to what element of pension v lump sum a client elects to take. We usually signpost clients to IFAs for advice as to the best option regarding the pension itself.

Thanks 1964, this has been my experience in the past, yes I send my clients to IFAs but usually the lump sum v pension is a non brainer as the clhas all of the pension deducted from his PC so is better off with a lump sum. The regs are a bit vague as they do say that all or part of any income that could be taken is considred to be income for PC purposes but the implication of that is that if a client takes a small pensoin but could have taken a larger one he will be assumed to have the larger one ,