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  • FIRST POST
    • Sillychuckie
    • By Sillychuckie 10th Jun 17, 7:47 PM
    • 1,117Posts
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    Sillychuckie
    Do pension lump sums (25% tax free) count as 'income' for benefits?
    • #1
    • 10th Jun 17, 7:47 PM
    Do pension lump sums (25% tax free) count as 'income' for benefits? 10th Jun 17 at 7:47 PM
    Some friends I'm trying to help have asked me to look something up, but I'm struggling to find a clear answer online.

    They receive Housing Benefit and Council Tax benefit because of low income and low savings. They have a SIPP with some money in, but, because they have not yet reached 'qualifying pension age', these funds are ignored.
    They would like to start dipping into the SIPP's, but, not by any amount which might impact their benefit entitlement.

    So - It is clear to me that there is an 'Applicable Amount' of weekly income which they must not breach (in their case, it is £114.85).
    Their current weekly income stands at £74.54.

    As such, they could safely take £40 per week from their SIPP and have it not impact their benefits.
    BUT.... If they take their 25% tax free lump sum, and it equates to £2000, would this impact their benefits?

    I know the following:
    - The £2000 would then become 'considered savings', and, this might impact their adjusted income, as anything over £6000 counts as £1 income for each £250 over.

    They are in this situation so therefore, the £2000 lump sum would count as £8 'Tariff income from savings', meaning that in reality, they could only take £32 as a true 'weekly income'.

    However (and this is my question)...
    (sorry it is taking so long to get there).

    Is this £2000 ALSO considered as 'income.
    i.e. Would the benefits folk say:
    You took £2000 out of your SIPP this year, therefore, you earned £2000, therefore you received an additional 2000/52 = £38.46 weekly income?

    If so - then I suspect it is not worth them taking any 'lump sum', or, if they do, it means they could not do the £40 per week.
    Its one or the other - not both.
    I think I would advise them to avoid any 'lump sum' withdrawal, but just 'draw down' £40 per week and declare it.

    I just wanted to run this by someone first.
    Thanks.

    SC
Page 1
    • xylophone
    • By xylophone 10th Jun 17, 11:23 PM
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    xylophone
    • #2
    • 10th Jun 17, 11:23 PM
    • #2
    • 10th Jun 17, 11:23 PM
    http://www.justadviser.com/documents/means-tested-benefits-and-pension-flexibility-1312231.pdf

    may be worth a look.
    • Sillychuckie
    • By Sillychuckie 11th Jun 17, 12:00 AM
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    Sillychuckie
    • #3
    • 11th Jun 17, 12:00 AM
    • #3
    • 11th Jun 17, 12:00 AM
    Thank you xylophone - that is absolutely what I was after.
    The doc states:

    Taking the whole fund (e.g. as an uncrystallised funds pension lump sum) or ad hoc withdrawals will be regarded as
    capital. This is despite the fact some or all of the amount could be taxed as income. The normal capital thresholds and
    tariff income from capital rules would apply to this sum.
    • Amounts withdrawn on a regular basis will be treated as income (n.b. it is not necessarily the amount but the frequency
    which determines this treatment)

    This is good to know, and means they do indeed have the cash lump sum option still available to them. Thank you for providing me with a link to such an informative document.

    SC
    • xylophone
    • By xylophone 11th Jun 17, 10:26 AM
    • 23,144 Posts
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    xylophone
    • #4
    • 11th Jun 17, 10:26 AM
    • #4
    • 11th Jun 17, 10:26 AM
    This is the guidance to which the previous link refers.

    https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/417473/pension-flexibilities-dwp-benefits.pdf
    • Icequeen99
    • By Icequeen99 11th Jun 17, 1:22 PM
    • 3,432 Posts
    • 2,336 Thanks
    Icequeen99
    • #5
    • 11th Jun 17, 1:22 PM
    • #5
    • 11th Jun 17, 1:22 PM
    Some friends I'm trying to help have asked me to look something up, but I'm struggling to find a clear answer online.

    They receive Housing Benefit and Council Tax benefit because of low income and low savings. They have a SIPP with some money in, but, because they have not yet reached 'qualifying pension age', these funds are ignored.
    They would like to start dipping into the SIPP's, but, not by any amount which might impact their benefit entitlement.

    So - It is clear to me that there is an 'Applicable Amount' of weekly income which they must not breach (in their case, it is £114.85).
    Their current weekly income stands at £74.54.

    As such, they could safely take £40 per week from their SIPP and have it not impact their benefits.

    BUT.... If they take their 25% tax free lump sum, and it equates to £2000, would this impact their benefits?

    I know the following:
    - The £2000 would then become 'considered savings', and, this might impact their adjusted income, as anything over £6000 counts as £1 income for each £250 over.

    They are in this situation so therefore, the £2000 lump sum would count as £8 'Tariff income from savings', meaning that in reality, they could only take £32 as a true 'weekly income'.

    However (and this is my question)...
    (sorry it is taking so long to get there).

    Is this £2000 ALSO considered as 'income.
    i.e. Would the benefits folk say:
    You took £2000 out of your SIPP this year, therefore, you earned £2000, therefore you received an additional 2000/52 = £38.46 weekly income?

    If so - then I suspect it is not worth them taking any 'lump sum', or, if they do, it means they could not do the £40 per week.
    Its one or the other - not both.
    I think I would advise them to avoid any 'lump sum' withdrawal, but just 'draw down' £40 per week and declare it.

    I just wanted to run this by someone first.
    Thanks.

    SC
    Originally posted by Sillychuckie
    I'm confused about the part in red - what makes you think that the £40 a week wouldn't affect their benefits. It would be treated as income and reduce the amount they receive.

    IQ
    • Alice Holt
    • By Alice Holt 11th Jun 17, 1:57 PM
    • 1,496 Posts
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    Alice Holt
    • #6
    • 11th Jun 17, 1:57 PM
    • #6
    • 11th Jun 17, 1:57 PM
    I'm confused about the part in red - what makes you think that the £40 a week wouldn't affect their benefits. It would be treated as income and reduce the amount they receive.

    IQ
    Originally posted by Icequeen99
    Yes that bit confused me too.

    OP - Can you not help them get accredited advice from their local CAB / advice agency?
    • Sillychuckie
    • By Sillychuckie 11th Jun 17, 1:57 PM
    • 1,117 Posts
    • 267 Thanks
    Sillychuckie
    • #7
    • 11th Jun 17, 1:57 PM
    • #7
    • 11th Jun 17, 1:57 PM
    Hi IQ.
    That is not how I understand it, based on the calculation that has been explained in a letter they received.
    This is not for income support. This is only for Housing Benefit and Council Tax benefit.

    As best I can tell, the letter describes an 'applicable amount' (for a couple, in this borough). Providing their income falls below this amount, they qualify for the maximum benefit.

    The letter states:
    "As your weekly income of £74.54 is the same as or less than your applicable amount of £114.85, I can pay you your maximum council tax support of £21.86 each week".

    I am therefore concluding, that the letter would say the same, if for example their income was £114.54 per week.

    i.e.
    "As your weekly income of £114.54 per week is the same as or less than your applicable amount of £114.85, I can... etc etc".

    So it seems to me that there is indeed scope for the couple to draw a further £40 per week income without it impacting their current benefits.

    However - you may be right that there are other benefits they may receive in future (e.g. income support, JSA, ESA etc), which may be impacted. I don't know yet, as they are only in the process of applying for these now.

    SC.
    • Sillychuckie
    • By Sillychuckie 11th Jun 17, 2:05 PM
    • 1,117 Posts
    • 267 Thanks
    Sillychuckie
    • #8
    • 11th Jun 17, 2:05 PM
    • #8
    • 11th Jun 17, 2:05 PM
    Yes that bit confused me too.

    OP - Can you not help them get accredited advice from their local CAB / advice agency?
    Originally posted by Alice Holt
    They have been there already to reach this stage of applying for things (and receiving the benefits).
    This particular query I have though is probably beyond the knowledge of the typical CAB worker (in my experience) though, and Xylophone has come up trumps with a fine answer. Thanks.
    • Icequeen99
    • By Icequeen99 11th Jun 17, 2:16 PM
    • 3,432 Posts
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    Icequeen99
    • #9
    • 11th Jun 17, 2:16 PM
    • #9
    • 11th Jun 17, 2:16 PM
    Hi IQ.
    That is not how I understand it, based on the calculation that has been explained in a letter they received.
    This is not for income support. This is only for Housing Benefit and Council Tax benefit.

    As best I can tell, the letter describes an 'applicable amount' (for a couple, in this borough). Providing their income falls below this amount, they qualify for the maximum benefit.

    The letter states:
    "As your weekly income of £74.54 is the same as or less than your applicable amount of £114.85, I can pay you your maximum council tax support of £21.86 each week".

    I am therefore concluding, that the letter would say the same, if for example their income was £114.54 per week.

    i.e.
    "As your weekly income of £114.54 per week is the same as or less than your applicable amount of £114.85, I can... etc etc".

    So it seems to me that there is indeed scope for the couple to draw a further £40 per week income without it impacting their current benefits.

    However - you may be right that there are other benefits they may receive in future (e.g. income support, JSA, ESA etc), which may be impacted. I don't know yet, as they are only in the process of applying for these now.

    SC.
    Originally posted by Sillychuckie
    yes that makes more sense. I don't think you say what their income is for the £74 - but worth checking that it isn't impacted by this additional income.

    IQ
    • nannytone
    • By nannytone 11th Jun 17, 4:00 PM
    • 12,205 Posts
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    nannytone
    i dont understand why a vouple would be receiving £74 a week. there must be additional income
    • Alice Holt
    • By Alice Holt 11th Jun 17, 5:42 PM
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    Alice Holt
    I dont understand why a couple would be receiving £74 a week. there must be additional income
    Originally posted by nannytone
    I think, possibly, that they have only just applied for the relevant benefits (?).
    (But I am slightly wary of a "friend" posting on behalf of others, as often the true situation is not known or is distorted).

    The OP's supposition that "they could safely take £40 per week from their SIPP and have it not impact their benefits.", only holds true if they fail to claim the relevant earnings replacement benefit (presumably JSA or ESA or UC).

    After these are in payment, and once they receive the minimum amount that the government says you need to survive - then drawing the £40 pw pension income will reduce HB, CTr, etc.

    What do you think?
    • teddysmum
    • By teddysmum 11th Jun 17, 8:00 PM
    • 8,381 Posts
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    teddysmum
    If a regular pension payment is taken, can you actually cancel it ? (I would imagine that you couldn't.)
    • Sillychuckie
    • By Sillychuckie 11th Jun 17, 10:48 PM
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    Sillychuckie
    Alice is correct, in that thy are ONLY starting to qualify for benefits as their savings amount has fallen below the 15k (or is it 16k?) threshold. They targeted Housing Benefit and Council Tax first, as these seemed to have the biggest initial payoffs (and the least scary looking forms).
    Thankfully they have been approved for both, so are now starting to look at ESA, or failing that, Income Support, or failing that, JSA.

    The £74 per week is made up of 2 private pensions from previous employment.

    It is interesting to think that their ESA/Income Support/JSA payments might mean they no longer qualify for Housing Benefit/Council Tax Support, if it pushes them over the threshold. It seems odd that one benefit they get later might undo all the hard work they have put in to get the first 2 benefits. I thought that these would be 'protected' or treated differently, but was waiting until they applied/qualified before looking into it further.

    Obviously I'll review the SIPP withdrawal question then also, but, if withdrawing and having a great 'income' risks their benefit payments, then the answer is simple and obvious.
    Simply withdraw a lump sum instead, on an ad-hoc basis, when they need to.
    This would count as 'capital', so not conisdered income, although, it may affect their calculated income based on the 'savings' element (if over 6k).

    I think the answer is to just use it to top up their savings back to 6k, when they need to.
    i.e. When they are down to 3k, take out 3 from the SIPP.
    This shouldn't then impact the benefits.

    SC.
    • xylophone
    • By xylophone 11th Jun 17, 11:30 PM
    • 23,144 Posts
    • 13,412 Thanks
    xylophone
    http://www.ageuk.org.uk/Documents/EN-GB/Factsheets/FS48_Pension_Credit_fcs.pdf?dtrk=true
    • Alice Holt
    • By Alice Holt 11th Jun 17, 11:54 PM
    • 1,496 Posts
    • 1,600 Thanks
    Alice Holt
    Once ESA (or JSa) is in payment (I'm assuming that it is Income-Based) the calculation is likely to look something like this (to nearest £):

    Applicable Amount - £115
    Less - Existing Pensions (£74)
    - Tariff Income (£16) - see below
    = ESA payable of £25 pw.

    Because income based ESA / JSA is payable, then this should passport them to maximum HB .
    (Note this will depend on the local housing allowance and how bedroom entitlement)


    If they draw £40pw from the SIPP, then the calculation will look like:
    Applicable Amount - £115
    Less - Existing Pensions (£74)
    - SIPP (£40)
    - Tariff Income (£16) - see below
    Total Income of £130 exceeds the applicable amount - so no ESA / JSA payable.

    HB will reduce as it is now calculated using a weekly income of £130.

    Note: Tariff Income - I've made an assumption of savings income of £10k.
    Between £6k and £16k tariff income of £1pw is assumed for every £250 of savings over £6k.

    So, drawing the £40pw of income from the SIPP would impact on benefits as shown above.

    For an exact calculation they could use:
    http://www.entitledto.co.uk/benefits-calculator/startcalc.aspx
    https://benefits-calculator.turn2us.org.uk/AboutYou
    Or return to the CAB with their documentation for a benefits check.

    To claim ESA would require their GP to issue a fit note.
    Do they have caring responsibilities to qualify for IS?

    If their savings have only just fallen below the £16k level, have they declared these savings to the LA HB dept? I cannot see any mention of tariff income on the HB notice you have quoted.
    See: https://england.shelter.org.uk/housing_advice/housing_benefit/how_housing_benefit_is_calculated
    Last edited by Alice Holt; 11-06-2017 at 11:59 PM.
    • Xbigman
    • By Xbigman 12th Jun 17, 12:19 AM
    • 2,923 Posts
    • 1,180 Thanks
    Xbigman
    If they have nearly 16k in savings being counted as Capital and money in a sipp that is disregarded then the correct choice is to spend the savings. I don't mean blow it in one go, I mean take out £40 a week from the 16k savings to improve their lives a bit.




    Darren
    Xbigman's guide to a happy life.

    Eat properly
    Sleep properly
    Save some money
    • Sillychuckie
    • By Sillychuckie 12th Jun 17, 9:33 AM
    • 1,117 Posts
    • 267 Thanks
    Sillychuckie
    Hi Alice.
    Thanks for the info about how things might look in the future once ESA/JSA (you are correct in assuming 'income-based') are approved.
    I see that with these in place also, drawing any money from their SIPP *AS INCOME* will decrease their benefit entitlement.

    RE: ESA - They got the necessary 'fit note' a few days ago, and the application is in the post
    RE: Caring Responsibilities - None
    Re: Declared savings - Yes, they have declared the savings they have below the 16k mark, and this has been considered as 'tariff income'.

    I lazily described their £74 as 'other pensions' income, but if I drill down to the detail, it is:
    - £47 (pension)
    - £27 (tariff income from savings).


    I think things would have been easier and made more sense if they had applied for ESA/IncomeSupport/JSA first, then done HB/Ccl Tax - but such is life.

    In response to Xbigman/Darren, I have concluded something similar.

    Their best bet is to just ignore their SIPP funds and leave them where they are, whilst they draw down on their savings.
    When their savings get sufficiently low (e.g. 2k), they can savely withdraw an ad-hoc, (NON REGULAR) payment frmo their SIPP (e.g. 4k).
    This would NOT count as income, and nor would it even impact their 'tariff income' calc, as this would still keep them below the 6k threshold.

    I posted this question really to ascertain whether they should draw down now (in small amounts, as income), or defer until later, with ad-hoc lump sums...
    and I think in their case, the latter is the best choice.

    Thank you all for your help.
    SC.
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