State Pension/Benefits Question

dizzie

Understanding deferred state pension
Hi,

I'd be grateful for advice on this if anyone knows how pension deferral works and how it affects other things.

A good friend of ours (single and living alone) will be 66 on 2nd October. She continued working part time when she reached 60 and so deferred her state pension (she won't qualify for full state pension ...and she says her pension forecast is around £75 per week). She will have deferred her pension for 6 years by 2nd October 2014, and was hoping to take this as a lump sum. She won't have any other income when she retires - other than her state pension (so she should get pension credit). She does own her house, so at least she doesn't have any rent to pay. She is getting a little bit of working tax credit at the moment whilst she is working but clearly, when she retires - that will stop and she'll go on to pension plus pension credit.

She has been a bit confused by the advice on the Pension Advisory Service and government websites and asked me if I could look at these and work out how deferred pension works and how it affects everything else. I have to say that having looked on these websites, I'm as confused as she is! The questions I have are:

1. The Pensions Advisory Service and Government websites say that you can't chose to receive deferred pension as a combination of lump sum and increased pension (i.e. a split). If she retires in October, she will have 6 years deferred pension, but if she retires at the end of the tax year (i.e. works about another 5 months), will her lump sum be worked out on 6 years and 5 months deferral or do they just do this in full years. She has telephoned the pension people and has been told that they will pay her 6 years lump sum and a slightly increased pension to account for the other 5 months deferred amount....but that seems to be contrary to what the websites say!

2. Would she be better to defer receiving her lump sum until after 6th April 2015 (i.e. would it complicate matters that she has been receiving a little WTC this year? and would the lump sum be classed as income and result in WTC being clawed back if she did not defer taking it until > 6th April 2015 (She earns well below the personal allowance for basic rate tax so I know that when she takes the lump sum won't matter from a taxation point of view)).

3. Will the lump sum affect her pension credit calculation. She has negligible savings otherwise, but I guess if her lump sum is around £20k then once she gets it....she will try to keep most of this as "savings" as a safety net in case she has any large bills to pay (e.g. needs to replace her central heating boiler or a roof repair). According to the government websites, they say that lump sums from a deferred state pension will be disregarded when they work out pension credit....but then if you do a calculation on their website....it looks that they do include the lump sum from a deferred state pension in the calculation of pension credit (again, this seems to be contradictory and confusing)

Many thanks for any help with this.

Icequeen99

Hi

I don't know the answer to question 1.

For question 2- the lump sum will count as income for WTC in the tax year she gets it. So yes, if she gets it in a year she has been getting WTC then she may have an overpayment of WTC.

For question 3 - No the lump sum is disregarded.

See https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/210220/DWP024.pdf to confirm both answers on page 21

IQ

xylophone

pension credit calculation.

http://www.ageuk.org.uk/Documents/EN-GB/Factsheets/FS48_Pension_Credit_fcs.pdf?dtrk=true worth a look.