What level of income is too low to make pension worthwhile

exil

Well, in a sense you do, in that you get some credit if you have savings up to about 40-50k. The credit you get is the difference between your income and the pension credit amount, but you get extra if you have some savings.

http://www.thepensionservice.gov.uk/pensioncredit/guidance-charts.asp

dunstonh

I had a case a few years back where the income support calculation for a client did take into account a possible income from a pension even though it hadnt been commenced.

EdInvestor

Couple of points from the Commissioner's ruling:

With many more families now facing the risk of an elderly relative needing care without this any longer being insured under the National Health Service, and so coming up against the means-tested system for the first time, it needs to be made clear that reg. 51(1) depends on what was actually intended or contemplated at the time of a capital transfer. There is no "safe" period after which income support may be claimed without the need for inquiry, and it would be most regrettable if the use of such investments were to be seen as a means of "sheltering" assets from the reckoning.

So be prepared for an inquisition if money is put in an IB to avoid care costs.

... It follows that although the capital value of the expected future instalments has to be disregarded under the express provision in para 16 of Sch. 10, the instalments themselves have to be brought into account under reg. 41 as income of the period for which they are paid, for so long as the total outstanding together with any other capital as valued under the regulations is over £8000.

So capital will be disregarded for pension credit but not withdrawals.

But how are the withdrawals counted? Are they "deemed" as income from the capital and counted at 10% (regardless of how much is actually being withdrawn) like savings interest?

jamesd

Paul, thanks for those excellent references!

dunstonh, had the pension reached its normal payment date and been deferred, or was it a demand that the pension be taken early? If it was delayed and I recall correctly that's consistent with the treatment of deferring the state pension.

EdInvestor, 8000 was probably the capital exemption at the time of the ruling. The capital is changing from exempt to non-exempt when it is taken from the investment bond and placed into the bank account. Then it becomes subject to the capital limit and can be factored in to deciding whether the person has enough capital to be ineligible for income support. Hence "so long as the total of that outstanding value and any other capital assets she had ... was over £8,000, the periodic payments she received from the withdrawal option in force under the policy count as capital payable by instalments and must be treated as her income".

Putting that another way, you can take an income from capital up to the current capital exemption limit and it doesn't count as income reducing income support payments.

That seems to be an interesting benefit for investment bonds over ISAs for someone who is worried that they may become unemployed. Leaves you without the protection from CGT that an ISA offers but it'll take a while before that is reached. May make investment bonds better than ISA investing for some basic rate tax payers.

The care fees article discussion of second hand endowment policies is also interesting.

dunstonh

dunstonh, had the pension reached its normal payment date and been deferred, or was it a demand that the pension be taken early? If it was delayed and I recall correctly that's consistent with the treatment of deferring the state pension.

he was in his late 50s. It was just a normal PPP with ordinary rights. The selected retirement date was 65 but of course he can take it earlier than that. The provider was asked to provide in writing to the DSS what income that pension would have bought him if it was commenced now.

An investment bond would be easy to get disregarded if it was done years before and sold as an investment. If it was sold just before the event, then it smells funny and you are asking for it to be reviewed.

Financial advisers are not allowed to sell or document that an investment bond has been recommended to allow care costs or pension credit. It is meant to be another valid reason.

EdInvestor

Money withdrawn from an investment bond comes from the capital.It is not income earned by the investment.

So I think what this means is that the DWP is "deeming" any such withdrawals to be income from capital ( not capital itself, even though that is what it is in fact).

jamesd

EdInvestor, provided they exceed the capital limit, that appears to be so. Withdrawing a periodic lump sum might be more efficient.

dunstonh, that's a pretty nasty case! Effectively, we're going to starve you into taking your pension early, if the person didn't have other resources.

EdInvestor

jamesd wrote: »

dunstonh, that's a pretty nasty case! Effectively, we're going to starve you into taking your pension early, if the person didn't have other resources.

I don't see why the taxpayer should pay benefits to people who can obtain an income from their pension, frankly.

jamesd

EdInvestor, the pension money is for use as a pension, not a replacement for benefits the person has presumably been paying taxes and NI contributions to obtain.

EdInvestor

But this person was in his late 50s. Effectively he was retired.