Pension Pot - Pension Credit - £10k Limit

qwerty444

Aged 64, currently receiving Pension Credit with savings under £10k.
I understand that if I withdraw money from pension pot that takes me over £10k savings I am deemed as earning £1pw for every £500 over the £10k limit.

Which raises 3 Q's:

1) Potential here is that I would be deemed as earning £30 a week - ie £30pw taken off my PC ??
The cash would be used to pay off my (80's) 'pension mortgage' - ie in my bank acct one day and out the next (already on extended time so need to pay this off within 18mths).

2) What would be the outcome if I waited until last week of the financial year before I withdrew pot - a bill from DWP of £1560 ??

3) Was informed today that if u elect for 25% tax free on total (rather than flexi drawdown) there are no further 25% tax free payments available at any time ??

All advice gratefully rec'd

jamesd

You can take benefits from/ crystallise only part of a pension pot if you wish. On the part you crystallise you can take a tax free lump sum of up to 25% and must do that at the start. you can never do it again for that part of your pension pot. You can do it for the parts of the pension pot that you didn't touch.

xylophone

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

"Your capital will not affect your PC unless you have more than £10,000.Every £500 or part of £500 of capital over £10,000 is assumed to give you a weekly income of £1 a week. This is called ‘deemed income’. For example, if you have savings of £12,200, a weekly deemed income of £5 is included in your income assessment.
The same limits apply for both single people and couples. If you have a partner, their capital is added to yours.

Deprivation of income (notional income)
Sometimes you may be treated as having income that you do not actually have. This is known as notional income. This might happen if you fail to apply for income you are entitled to, or if you have deliberately got rid of income with the intention of increasing your benefit entitlement"

qwerty444

jamesd wrote: »

You can take benefits from/ crystallise only part of a pension pot if you wish. On the part you crystallise you can take a tax free lump sum of up to 25% and must do that at the start. you can never do it again for that part of your pension pot. You can do it for the parts of the pension pot that you didn't touch.

Thanks James,
So that confirms Q3

Any ideas about Q1 & Q2 ??

xylophone

https://www.fidelity.co.uk/investor/retirement/cashing-in-your-pension.page

http://www.telegraph.co.uk/finance/personalfinance/special-reports/11445291/The-tables-that-reveal-your-tax-bill-on-pension-withdrawals.html

http://www.independent.co.uk/money/tax/money-alert-its-now-easier-to-reclaim-overpaid-tax-on-pension-withdrawals-10168829.html

qwerty444

xylophone wrote: »

https://www.fidelity.co.uk/investor/retirement/cashing-in-your-pension.page

http://www.telegraph.co.uk/finance/personalfinance/special-reports/11445291/The-tables-that-reveal-your-tax-bill-on-pension-withdrawals.html

http://www.independent.co.uk/money/tax/money-alert-its-now-easier-to-reclaim-overpaid-tax-on-pension-withdrawals-10168829.html

Thanks for the reply xylophone.

http://www.independent.co.uk/money/tax/money-alert-its-now-easier-to-reclaim-overpaid-tax-on-pension-withdrawals-10168829.html

Good to hear that HMRC expect to repay emergency tax within 30 days

Would still like to know how going over the £10k limit will affect my PC.
So for example a cash sum takes me up to £24k savings (once tax is accounted for), which is £14k above the limit or calculated at £28pw.
Does this mean my PC is reduced by £28pw for a year ??
Yes or no...

xylophone

As I understand it, PC is awarded on a means tested basis.

You have deemed income of £28 a week from the capital. This is added to your other income and compared with your MIG.

Presumably this then determines whether or not you remain entitled to the PC.

If you are over 60 and are eligible to claim on your private pension, presumably you should have claimed or advised DWP that you weren't claiming?

You really need to discuss your situation with DWP?

http://www.pensionsworld.co.uk/pw/article/dwp-issues-warning-pensions-freedoms-and-means-tested-benefits-12335171 might be worth a look.

jamesd

I didn't reply to the Pension Credit questions because I thought that you were already unintentionally claiming benefits you're not entitled to and wanted to check that before posting. The document that xylophone linked to is the one I'd read that gave me that impression. I think that you have been unintentionally claiming more Pension Credit that you are entitled to from the day you became eligible for Pension Credit or claimed, whichever is later.

As xylophone suggests, you need to urgently discuss this with DWP to arrange to repay any overpayment of benefit and find out what the annuity income that they expect you to have is.

Once you know the income level you're expected to have from an annuity you can work out how to get that income. One key question to answer is whether you reach or reached your state pension age before 6 April 2016 or after. This is because it determines how much income increase you get by deferring your state pension, either 10.4% or 5.8%, both increasing with inflation. Either is greater than the income an annuity would be likely to provide.

qwerty444

Thanks xylophone & jamesd,

There must be many other people in a similar situation to mine that could be between a rock and a hard place...

Take the cash to pay off a mortgage but lose all PC (due to deliberately depriving yourself of annuity)
Or don't take the cash and lose your house... (because the mortgage is at the end of its term)

According to this document: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/417473/pension-flexibilities-dwp-benefits.pdf
each case is decided on its individual circumstances.

Will have to phone http://www.pensionsadvisoryservice.org.uk and see what they say, but wish I had never bought into a pension mortgage !!

jamesd

I doubt that paying off an interest only mortgage with the tax free lump sum would be considered to be deprivation of assets because it would have been a pre-planned use of that money. But do check to be sure.

It has its inconveniences but do remember that your pension mortgage is probably being paid off at no net cost to you, just from tax relief. It was a good plan and probably has made you better off than you would have been.