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Pension freedom and benefits

Paul_Treloar_AgeUK
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Information and advice resources - Age UK

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We’ve produced a new factsheet which hopefully helps people to understand some of the potentially complex interactions between taking advantage of pension freedoms introduced by the government in April 2015 and their impact on means-tested benefits for working age people and Pension Credit claimants.

It’s pretty low-level as we aren’t able to give pension pot advice (as it’s a regulated area) but we were receiving feedback from clients who were dissatisfied with being unable to understand what their best choices were and what might happen to them.

Hope it’s useful and any feedback always welcome.

Pension freedom and benefit

MMiah
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Thanks for such a helpful document Paul.

I have a query relating to a draw down. Document 5.2 of the attachment specifies a partial draw down is treated as capital. I have a case whereby the DWP are treating a partial draw down as income over a 52 week period.  I have checked the pension statement and it is definitely not an annuity.  I shall be using the PDF factsheet as persuasive evidence but I would be grateful for the specific ESA Regulation/ESA guidance which specifies a draw down is capital not income. 

Thanks kindly in advance

Paul_Treloar_AgeUK
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MMiah - 07 July 2016 02:00 PM

Thanks for such a helpful document Paul.

I have a query relating to a draw down. Document 5.2 of the attachment specifies a partial draw down is treated as capital. I have a case whereby the DWP are treating a partial draw down as income over a 52 week period.  I have checked the pension statement and it is definitely not an annuity.  I shall be using the PDF factsheet as persuasive evidence but I would be grateful for the specific ESA Regulation/ESA guidance which specifies a draw down is capital not income. 

Thanks kindly in advance

Glad you’ve found it helpful.

The statement regarding capital drawn down as lump sum payment was based on p.278 CPAG 2016/17 under section “Capital that counts as income”.

This notes that “Sometimes you may find that withdrawals from a capital sum are treated as income. This is most likely if the sum was intended to cover living expenses over a particular period…..If this is not the intended use of any capital sum, dispute the decision. Even if the sum is intended for living expenses, argue that, unless it is actually paid in instalments, it should be treated as capital.” with footnote of decision R(H) 08/08 which I can’t lay my hands on I’m afraid.

We did have this checked by someone from DWP in the Pension Credit team and they confirmed that they were happy with the information contained also. Let us know how you get on - it’‘s one of those tricky areas to be definitive about, although I think a clear one-off payment does naturally tend to be treated as a capital sum, rather than income.

Paul_Treloar_AgeUK
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There’s also this DWP publication which supports our statement.

“If you or your partner do take money from your pension pot, it will be treated as either income or capital, depending on, for example, how regularly you withdraw it. “

Pension flexibilities and DWP benefits

A one-off payment cannot, in my opinion, be treated as any kind of regular payment by definition. Depending on the outcome of your challenge, we may need to amend the wording though and seek further clarification from DWP?

Gareth Morgan
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I agree with Paul.  While there are a number of areas where regular withdrawals of capital will be treated as income, such as in equity release, it’s impossible to see one payment as regular.  Is this a regular annual withdrawal?

Jon (CHDCA)
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Paul_Treloar_AgeUK
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Jon (CHDCA) - 08 July 2016 09:15 AM

R(H) 8/08
http://www.osscsc.gov.uk/aspx/view.aspx?id=2390

Nice one Jon, thanks.

Had a quick scan and have to say, has little relevance to this issue however. Mainly concerned with treatment of regular loans, not one-off payments of capital though.

[ Edited: 8 Jul 2016 at 09:42 am by Paul_Treloar_AgeUK ]
MMiah
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It is not a regular amount.  The client has taken ad-hoc withdrawals over past 4 years, nothing amounting to a pattern with varying frequency and varying amounts.

Paul_Treloar_AgeUK
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MMiah - 08 July 2016 11:55 AM

It is not a regular amount.  The client has taken ad-hoc withdrawals over past 4 years, nothing amounting to a pattern with varying frequency and varying amounts.

In that case, it’s actually the information at section 5.3 that would seem to apply and which does state that “Similarly, if you decide to take money from your pension pot in chunks, it may be treated as either income or capital depending on the regularity of withdrawals”

On the basis of what you’re saying, it certainly does sound arguable nonetheless that these payments should be treated as capital payments.

Giles Elliott
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A really useful factsheet: thanks very much Paul and Age UK!

Paul_Treloar_AgeUK
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Giles Elliott - 07 March 2017 02:35 PM

A really useful factsheet: thanks very much Paul and Age UK!

Thanks Giles, much appreciated. Just preparing for an update in next couple of months, all being well.