Pension plan

coupes

I need some help for a family member if anyone could help with this please.

For the last few years my uncle has been receiving pension credit. He had worked at an industrial plant for over 25 years prior to this but lost his job due to ill health. As far as im aware he paid full NI contributions and council tax during his working life of nearly 40 years. The company he worked for was later taken over by another international company and a lot of the workforce were offered early retirement or were made redundant during this process.

Now he has become of retirement age and has been sent correspondence from his previous employer’s pension consultants about his pension plan. To his surprise he has discovered that he is entitled to nearly £30k as a lump sum payment or if he wishes he can withdraw an annual company pension worth about £7k. Im assuming this would be on top of the state pension.

Which option would be best?

He is currently renting a room with a friend as he is also separated from his partner. At the moment I believe he pays a low rent or it is already subsidised by the council. As I understand it if he accepts the lump sum then it will mean he is no longer entitled to any housing benefit, council tax benefit or grants. But with the annual pension he may still remain eligible for these means tested benefits.

Any help and advice welcome thanks.

dunstonh

Which option would be best?

Assuming the figures you have posted are correct (as they dont match current pension rules - so it may be an old hybrid cash scheme).....

£7000 is about 5-6 years worth of income (with crude consideration for interest on the £30k).

As I understand it if he accepts the lump sum then it will mean he is no longer entitled to any housing benefit, council tax benefit or grants. But with the annual pension he may still remain eligible for these means tested benefits.

I would think either option is likely to take him out of the means test. How likely that is will depend on his current income and savings.

Loughton_Monkey

He needs to look closely at the pension benefits. There are no pensions, to my knowledge, that offer a cash lump sum or a pension. It is more usual to quote a 'full' pension, together with an alternative of taking a cash lump sum and a reduced pension.

If, say, his total pension value was in the order of £120,000, this would 'fit' with the normal 25% lump sum, tax free, of £30K, with the remaining £90K providing about £5,250 a year. Or £7,000 a year on the full £120K.

I'm afraid I have absolutely no idea whatsoever about how any of this would affect his benefits, but obviously he should check. The lump sum itself is not taxable, but clearly, as a cash asset, it potentially affects entitlement to benefits. You could consider an option of delaying the pension, but again, I do not know if this decision would affect benefits. Delaying it should mean an even higher pension when it is taken eventually.

seven-day-weekend

For means-tested benefits such as Council tax benefit and Local Housing Allowance (rent), the capital limits are :

Below £10k and you qualify for full help.
Between £10k and £16k and you qualify for reduced help on a a sliding scale.
Over £16k you are entitled to no help.

There are also income limits but these depend upon the particular person's circumstances.

Pension Credit is also means-tested but worked out differently.

State Pension is not means-tested.

His Occupational Pension will be on top of the State Pension and he may have to pay tax.

Delaying the Occupational Pension will not make any difference, as any money you are entitled to receive will be included in the means test even if you do not draw it.

I would suggest he sees a Benefits Advisor at the CAB who will be able to advise him according to his circumstances.

dunstonh

There are no pensions, to my knowledge, that offer a cash lump sum or a pension.

There are some. Typically old plans that fell under pension legislation but didnt comply with the normal rules. Typically that have larger tax free cash payments (sometimes as much as 100%) and these plans automatically gained transitional relief for protected lump sums (as long as they didnt transfer).

In our area, you tend to find many of them were linked to old manufacturing firms (that are often closed down or have been eaten up by larger companies).

That said, the income payable vs the lump sum payment do seem to be wider than the usual mark unless there is a significant penalty for taking the value as cash.