Income or Capital?

Swanseajack

Hi, my OH and I are in receipt of Guarantee Pension Credits, Child Tax Credits and Housing Benefit. My OH has the chance to unlock a 24K pension that we had hoped was going to achieve more like 35K. We were going to buy a mobile home but now find ourselves with insufficient funds to buy the new one that we wanted. However, what we would like to do is buy a new car as ours is falling apart. Can someone help with the following questions please:

1) Out of the 24K pension, apart from the 6K tax free lump sum, the remaining 18K will be taxed at 20% (less personal allowance). So, let's say there's around 16.5K left. If we then spend approx 5K on a new car, i.e. leaving 11.5K in the bank, would Pension Credits deduct 2 pounds per 500 pounds for the 1.5K over the 10K savings threshold?


When I rang the PC office to enquire, the girl said she didn't know but she thought that was the case and someone would ring me back, but, if I didn't hear within five days I should put it in writing! A very bizarre system!

I'm further confused because someone told me that as the money is not a regular annual drawdown it would be classed as a capital asset, or savings in other words. However, someone else said they thought the whole lot would just be classed as straightforward income for benefits purposes, regardless of what if anything, we intended to spend it on.


If anybody can help answer these queries that would be great. Cheers, Jack

10pence

It would be best to report the full level of capital/savings gained and allow the decision maker to decide what happens if and when you purchase a car.
I recently helped a client with a similar situation who had £16k from a pension; who purchased a car for approx £4k leaving £12k capital - the DM allowed a disregard for the car as they classed it as an essential item.

Swanseajack

Many thanks for your reply.


Does this mean that my OH's pension would be classed as capital/savings, as opposed to income?


Do you suggest I advise the PC department in writing? Last time I wrote to them I received no reply, and after eight weeks, after complaining twice, a guy called me back and said they were mostly too busy to respond to letters and mine had been filed but not responded to! I really couldn't believe it. Accordingly, I am very wary of dealing with them but obviously I need to let them know the situation.


Does the same apply to the Tax Credits office, would they be looking for any interest earned on the capital amount or would they view the taxed element as income?


There's something that I don't understand in regard to having a capital amount. What happens when you spend some? Car aside, over the period of a few months, the amount will decrease, mostly due to shortfall in our rent etc, so if the capital amount is constantly changing, how can the PC office keep on top of how much to deduct per 500 pounds over 10K etc?


Thank you for any further assistance you are able to give. Jack

10pence

The lump sum will be classed as capital/savings and not income: it will only be income if you get monthly instalments.

Just ring them to report change of circumstances - after all it is the claimants responsibility to report all changes of circumstances.

Regarding spending of savings and benefits: Deprivation of capital rules come into force, basically spending money excessively in order to claim benefits is frowned upon and the DM can decide you still have that money, reducing your benefit claims accordingly. LINK

Swanseajack

I really appreciate your help, thank you. I have tried to find out about Tax Credits, I'm a little unsure but I think the same thing applies, i.e. the lump sum pension is classed as capital savings and they just want to know about any interest. The housing benefit office say that 16K is the ceiling, unless you're in receipt of GPC so I guess even if they're disregarding 10K and adjusting award for monies over this amount, if it went over 16K that would still be OK...I think...

NYM

Would the information in this link be of any help to you ? https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/417473/pension-flexibilities-dwp-benefits.pdf

billywilly

Swanseajack wrote: »

My OH has the chance to unlock a 24K pension that we had hoped was going to achieve more like 35K. We were going to buy a mobile home but now find ourselves with insufficient funds. However, what we would like to do is buy a new car.

You are seriously not intending to live in a car?
It gets a bit cramped in the back.

By the way how is the Townsman doing? I used to work with little ole Gaynor back in the 70's there till she married Bobby and moved on?

konark

A lot of people cashing in their pensions are going to find that they have made themselves ineligible/ less eligible for means tested benefits like HB, CTC, WTC, JSA etc. Government aren't fools are they?

Swanseajack

Thanks for your comments people, and no, living in a car is not that high on my priorities, although you never know what fate has in store for you. Still unsure if a pension lump sum counts as capital or income in relation to Tax Credits, can anyone throw any light on this please?


Also, this appears a little like a chicken and egg situation, do I tell the PC office that my OH would like to buy a car and see what they say in terms of potential capital disregard, (presumable , one has to wait for some kind of DM decision?), or, does she buy one and then we tell them and hope that they will allow for it to be disregarded as far as notional capital goes?

NYM

Swanseajack wrote: »

Thanks for your comments people, and no, living in a car is not that high on my priorities, although you never know what fate has in store for you. Still unsure if a pension lump sum counts as capital or income in relation to Tax Credits, can anyone throw any light on this please?...

If you (or your partner) are over the qualifying age for Pension Credit

Once you (or your partner) reach the qualifying age for Pension Credit, you are expected to use your pension(s) to help support yourself. If you choose not to buy an annuity after reaching the qualifying age for Pension Credit, an amount of “notional” income will be taken into account when your benefit is worked out. “Notional” income (in this case) is an amount equivalent to the income you would have received if you had bought an annuity.

If you take an income from your pension pot, the amount which will be taken into account when assessing your benefit will be the higher of the actual income or notional income. If you take a cash lump sum, this will be taken into account as capital.

It is your responsibility to tell DWP (and your Local Authority where appropriate) if you or your partner take any money from your pension pot.

Deprivation rule

If you spend, transfer or give away any money that you take from your pension pot, DWP will consider whether you have deliberately deprived yourself of that money in order to secure (or increase) your entitlement to benefits. If it is decided that you have deliberately deprived yourself, you will be treated as still having that money and it will be taken into account as income or capital when your benefit entitlement is worked out.

Swanseajack wrote: »

Also, this appears a little like a chicken and egg situation, do I tell the PC office that my OH would like to buy a car and see what they say in terms of potential capital disregard, (presumable , one has to wait for some kind of DM decision?), or, does she buy one and then we tell them and hope that they will allow for it to be disregarded as far as notional capital goes?

Maybe it would be best to ask them first... They won't stop you spending your money as you want to, but they have the upper-hand in deciding what they will continue paying.

Icequeen99

Swanseajack wrote: »

I really appreciate your help, thank you. I have tried to find out about Tax Credits, I'm a little unsure but I think the same thing applies, i.e. the lump sum pension is classed as capital savings and they just want to know about any interest. The housing benefit office say that 16K is the ceiling, unless you're in receipt of GPC so I guess even if they're disregarding 10K and adjusting award for monies over this amount, if it went over 16K that would still be OK...I think...

As long as you are getting some guarantee pension credit - then you will be fine for tax credits.

But for anyone else reading this, the lump sum is classed as INCOME for tax credits not Capital.

IQ