Assets v Means Testing

Grumpy_Old_Duffer

Aged 55 and nearing retirement, in my case 60, and am aware that with the 'Means Testing' that the Government has intoduced on all the benefits now available, we will probably not get any 'benefits', because savings/assets are in excess of £"X".

Property currently worth about £250 - 300k, and investments currently totalling about £80k.

What is the best way of 'losing' savings/assets, so that we don't get 'penalised' when being 'Means Tested' for benefits? Current thoughts are to put savings in daughters name as a 'gift' (think you can do about £6 or 7k per year). Not sure what to do about the value of the property!! Contemplating buying a smaller property in the UK and with the residue, buy a property somewhere in the sun (At the age where I hate the Winter months!!!)

margaretclare

Grumpy_Old_Duffer wrote:

What is the best way of 'losing' savings/assets, so that we don't get 'penalised' when being 'Means Tested' for benefits? Current thoughts are to put savings in daughters name as a 'gift' (think you can do about £6 or 7k per year). Not sure what to do about the value of the property!! Contemplating buying a smaller property in the UK and with the residue, buy a property somewhere in the sun (At the age where I hate the Winter months!!!)

I don't think you could 'lose' assets to the extent that you have in mind. The 'means-testing' you speak of means that every single person is intended to be able to live on £114 a week and to have no more than approx £6,000 in savings. While I have no doubt that there are many people who have no choice but to 'live', or rather to exist, on these skinny amounts, I can't imagine why anyone would volunteer for it by - as you put it - voluntarily losing savings/assets that you have spent a lifetime building up.

Remember that at 60 you can easily live another 30 years, if not more. You don't know what you may need in that time.

We are a couple aged 71 and we're way way above any means-tested benefits level, not because of property or savings but because of income. We don't give it a thought! We are not obliged to declare what we have coming in to any means-testing authority and we live as we please.

With the assets you have, you can have a very comfortable retirement without ever having to give means-testing a thought.

Margaret

dunstonh

investment bonds are not included in any means tests for pension credit or local authority care. However, you cannot tell anyone that you put them in an investment bond to get more pension credit (you cannot be seen to invest in that way to get higher benefits). At your age it would be a problem as it is being done sufficiently before hand and would be classed as a genuine investment within an exempt tax wrapper.

At this stage you can gift what you like. You could give her the whole £80k if you wanted. The only issue on gifting [at your age] is linked to inheritance tax and not local authority care or pension credits.

You are not that much over the IHT threshold currently and if you are married you can always do a discretionary will trust and place the property in tenants in common and utilise first nil rate band to get ride of a lot of the property value in one chunk (as well as help the IHT position).

ReportInvestor

So someone with a £1m investment bond can get pension credit but not someone with a few £10Ks in the building society and a full state pension?

dunstonh

As it currently stands, if that £1 million was invested sufficiently prior to age 60 then yes, it would not need to be declared as it would be treated as a life assurance. If it was invested in the 12 months before (or any time after) or was knowingly invested to gain benefits, then it can be clawed into the means test.

Milarky

ReportInvestor wrote:

So someone with a £1m investment bond can get pension credit but not someone with a few £10Ks in the building society and a full state pension?

I assume the income must come out somewhere - and that would quickly whittle away entitlement to pension credit at 40 percent taperage?

The main rule is that any savings above £6000 is imputed to generate 10 percent - and pension credit is clawed back at 40% of that - so PC is reduced at just 4% of assets - that's scarcely an injustice compared to other means tests. If (say) you could sweat more than 14% out of your assets by some method that was safe you would just 'beak even' - as they ignore actual receipts. And I think its all the same - whether 'deposit' or 'investment' - in how this applies

dunstonh

Income on investment bonds is withdrawal of capital so not classed as income.

EdInvestor

I assume the income must come out somewhere - and that would quickly whittle away entitlement to pension credit at 40 percent taperage?

No, the 5% annual " tax free income" payable is actually a withdrawal of capital, not taxable income. Any growth earned by the (ever diminishing) capital after the hefty charges rolls up inside the bond (being taxed at 20% life assurance rate every year on the way.) Tax is applied on "chargeable gains" on maturity or when encashing the bond, there can be some top-slicing relief.

bill_on_line

Dear Group

Investments with an element of life assurance are disregarded as capital for means testing as discussed earlier in this thread, unless deprivation of capital was the motivation.

However would the following Stering assurance PEP be regarded as having an element of life assurance?

From customers web site Sterling quote https://www.sterling-assurance.co.uk

"Minimum return on death the greater of the value of the investment or the total amount invested, less withdrawals and distributed income."

And from PEP Transfer Plan Terms and condition it states

"14.3. The death benefit will be calculated as set out below. If you first
subscribed to the Account:
(i) Before 1 January 2003
The greater of the subscription you have made to your
Account (increased by the amount of the initial charge
and reduced by any withdrawals made) and the value
of your investments at the date we receive notification
of your death.
(ii) After 31 December 2002
As in (i) above except that any income payments made
will also be deducted from the subscription made."

Do other members of forum think this would be covered by life assurance disregard?

Bill

dunstonh

The life assurance element on the Sterling PEP doesnt count. It has to be a life assurance bond I'm afraid.

ffacoffipawb

dunstonh wrote:

The life assurance element on the Sterling PEP doesnt count. It has to be a life assurance bond I'm afraid.

Presumably a with profits bond (if you were mad enough) with a 5% withdrawal option would qualify, or maybe the investment linked Prudential Distribution Bond (or whatever it's called)?