Declare savings?

Sideways

Hi

Help and advice required

My mother-in-law retires in October, she will be sixty. She isn’t great with forms and figures and has asked me to advise her on what she is entitled to and what she should do with her private pension and savings (minimal savings, about £2k).

I can get the basics from http://www.thepensionservice.gov.uk regarding the State Pension. What I could do with is advice on the following-

She has a small-ish private pension from a company she works for many moons ago. They have been in correspondence and have decided on a settlement plan. She will receive a lump sum of around £13k and then receive a small pension monthly- this amount will be quite insignificant as she has opted to take the bulk in an up-front payment.

It is the £13k we are concerned about…

Does she need to declare this when she claims her state pension?
Will the figure reduce her state pension?
What is the amount of savings you are allowed before it affects your state pension (means testing?)

We are considering the idea of her giving my wife & me a large chunk of the money, say £7k, to invest for her in our name (IceSave etc). We will manage the account and get money out for her when required. The idea is to get the money out of her savings account, she is worried that having this money in her account will prevent her from getting a state pension or at least reduce it considerably. Is this illegal? Are there better ways to deal with it? What would you do if your mother was in the same position?

Any advice would be very much appreciated.

chesky369

I'm surprised the Pension Service hasn't been in touch with her directly up until now, as three months is actually quite close and they will need information as to bank etc. for payment.

Her state pension will not be affected by any savings.

However, what you are planning to do with her tax-free lump sum is illegal, if you are doing so in the hope of claming benefit that she wouldn't be allowed if she kept the money herself. Of course, she can give you a present of money but it's not as much as £7000 - nearer £3k I think. Any more than that and YOU have to pay tax on it.

She should consult a pensions IFA to make sure she's doing the right thing by taking the lump sum, rather than a larger monthly pension.

EdInvestor

Sideways wrote: »

Hi

I can get the basics from http://www.thepensionservice.gov.uk regarding the State Pension.

Do this now: it's essential to know how much state pension she in entitled to before making decisions on anything else.It may be more than she thinks.

{quote]She has a small-ish private pension from a company she works for many moons ago. They have been in correspondence and have decided on a settlement plan. She will receive a lump sum of around £13k and then receive a small pension monthly- this amount will be quite insignificant as she has opted to take the bulk in an up-front payment.[/quote]

This decision should not be taken before state pension amount is known.Normally a lump sum consists of 25% tax free cash, which would mean her total fund is around 52k.If 13k were taken in cash the remaining fund might generate a pension of around 50 pounds a week. Does this sound like what she will get?

It is the £13k we are concerned about…

Does she need to declare this when she claims her state pension?

No

Will the figure reduce her state pension?

No

What is the amount of savings you are allowed before it affects your state pension (means testing?)

Unlimited.State pension is not a means tested benefit.

What it could affect is "pension credit".this is a top up means tested benefit that is given to people who have very small (or no) other income or state pension.It doesn;t sound like she will be eligible for this, but you won't know until you find out how much her state pension(s) will be and investigate the private one a bit more.

Do that now..

The CAB is the place to go for advice if it looks like she will be borderline for pension credit.

noh

chesky369 wrote: »

......Of course, she can give you a present of money but it's not as much as £7000 - nearer £3k I think. Any more than that and YOU have to pay tax on it.........

The above is not the case there is no tax to pay on gifts of any size. The only potential for tax is if the donor dies within 7 years of the gift and their estate exceeds the IHT threshold. In that case the donors estate would be liable for any inheritance tax due.

Nigel

Sideways

Thanks guys, I am watching and reading.

dunstonh

We are considering the idea of her giving my wife & me a large chunk of the money, say £7k, to invest for her in our name (IceSave etc). We will manage the account and get money out for her when required. The idea is to get the money out of her savings account, she is worried that having this money in her account will prevent her from getting a state pension or at least reduce it considerably. Is this illegal? Are there better ways to deal with it? What would you do if your mother was in the same position?

That wont avoid IHT as it isnt classed as a gift. Plus the pension credit means test would consider it an attempt at deprivation of assets and include it in the means test (assuming pension credit would be payable).

jamesd

Find out how much her state pensions (basic and additional) and any other income including that form the rest of the old work pension will be. Details of any other savings and investments will also be useful. Once you have this information it'll be possible for us to make more useful suggestions because we'll have some idea of whether she might be getting state benefits as well as the pension.

If she's married that's also a factor so we'd need to know that.

Phuddles

I turned 60 & took my State and private pensions in May but have kept working full time, so not quite the same circumstances. I asked the DWP whether I needed to declare the tax free lumps sums and was told no, I just had to let them know about the amount of pension I would be receiving so they could work out my tax code - this is still ongoing due to procrastination on the part of one of the pension companies! I do have to declare the interest on savings & investments. My main purpose at the moment is to stash my pension into a high interest account (7% on regular savings up to £500 a month at Yorkshire BS and 6.25% on Sainsburys Internet - any other suggestions welcome) so I don't fritter it!! I've also paid 10% off the capital on my mortgage & am making small overpayments every month. Personally I would not want to hand over any of my capital for someone else to invest in their name on my account, no matter how close a relative!!

jamesd

Phuddles, that sounds like a good way to be poor in your old age. Savings accounts just aren't good enough when someone retiring now can expect to live for more than 20 years on average.

EdInvestor

Phuddles wrote: »

My main purpose at the moment is to stash my pension into a high interest account (7% on regular savings up to £500 a month at Yorkshire BS and 6.25% on Sainsburys Internet - any other suggestions welcome) so I don't fritter it!! I've also paid 10% off the capital on my mortgage & am making small overpayments every month.

Oh I don't know: 7% return with no risk is not bad and overpaying the mortgage is very sensible, especially as no tax as well.

jamesd

EdInvestor, Phuddles is continuing to work full time so the return won't be 7%, more likely 5.6%. Meanwhile good UK equity income funds do nearer 15% long term or Zopa's C lending market around 10% taxable.

Overpaying the mortgage may not even be matching inflation for someone of typical retirement spending habits.

Better IMO to be using both the cash and stocks and shares ISA allowances so the money in the ISAs can provide an ongoing source of tax free growth and then income.