pension pot - savings?

[Deleted User]

My husband has a state pension and a monthly pension from work. He also has a pension pot. I am not working and we have a 14 year old child. Based on his work pension and state pension income we qualify for child tax credit. My question is if we do drawdown on my husband's pension pot i.e. leave it and draw it out as required does it count as savings? If so, would it have to be declared when claiming child tax credit? Or anything else for that matter?

jamesd

For background information on DWP benefits please read DWP benefits and pension freedom.

I don't know the specific rules for Child Tax Credit but:

1. his state pension and monthly pension for work are household income and must be declared, no way to avoid that.
2. you must declare the amount in his pension pot. How that is treated will probably depend on his age, just as it does for the DWP benefits.

If he has already reached state pension age please let us know. This is because he can get a 10.4% increase in his state pension, increasing with inflation, by deferring claiming his state pension. He can do that once even if he's claimed it. This is such a great deal that it's even worth doing low cost borrowing to pay for it. For benefits he'd be treated as having the state pension income even while not taking it so it doesn't directly help there, it just improves the household income position longer term.

xylophone

The OP mentions her husband's state pension income so he is 65 or older.

She also mentions his pension pot.

If the benefits received are means tested, and he is of an age to take benefits from the pot, then even if he is not taking them, the income foregone should be taken into account when any means tested benefits are assessed?

Perhaps the OP should put her question on the benefits board?

[Deleted User]

Yes my husband is 65 and in receipt of state pension which he did defer for 3 months before he took it. He also has a monthly pension from his employment. What I want to know is does his pension pot ie the money he can drawdown from which is in a fund, count as savings and if it does then it would have to be declared when claiming anything?

mgdavid

I *think* that if he were under 55 and could not lawfully access the pension money then it's disregarded as savings, however as he can access it now it certainly should be counted as savings.

jamesd

Declare it. I think that it probably will count and there will be some presumed income as a result but I don't know the specific rules for child tax credits.

There are some things that I do know can be done:

1. He can make pension contributions, so can you. A person not working can make a payment of up to £2880 net a year and tax relief of 25% will be added to cover the basic rate 20% income tax. Even if no income tax was paid. A person who is 55 years old can take this out, getting the tax gain. The Virgin stakeholder pension is good for this. The pension contribution amount reduces income for tax credits.

2. He can take a 25% tax free lump sum from a pension pot and use this to fund 1. We don't know how big the pension pot is so it's difficult to comment much on it. Any lump sum taken would count as savings.

3. He shouldn't buy an annuity unless his health is so bad that he is likely to die in five to ten years instead of the normal 18 or so for a man aged 65. Deferring the state pension pays much more. But he can only defer once after claiming so this option may no longer be open to him unless his first deferring was just by not claiming - it seems as though it was and so more deferring is possible. Next best would be Class 3A national Insurance buying which will become available later this year. It'll pay him less than deferring but more than an annuity pays someone in normal health. Deferring would be very useful long term, using income from the pension pot to replace it while deferring.

[Deleted User]

So from what I can gather then. With the new pension rules, anybody who has a pension pot and is able to access it, ie. 55 or or older, will be unable to claim any benefits at all if the pot is more than the savings allowance, and they opt for drawdown? Regardless of working or not. However if they buy an annuity and the income falls within limits benefits could if needed be claimed? This is confusing I have searched the internet for answers and found nothing, the child tax credit form has no place to write pension savings. I am going to have to ring them up and hang on the phone for hours and speak to them I think.

[Deleted User]

Just found this to explain a bit:
How Pension Freedom affects benefits
Explanation of how new pension flexibilities affect benefits


The government is bringing in new pension flexibilities for people age 55 or over. If you have a personal pension you will now be able to access your pension pot by:

taking the whole pot as a lump sum
taking a number of lump sums out of their pot
opting for a flexible drawdown arrangement where lump sums, or regular payments, can be drawn down, or
purchasing an annuity
The new flexibilities do not generally apply to pensions based on your previous salary, as occurs in most public sector pension schemes. In some cases you can transfer to a so-called ‘defined contribution’ scheme, but in general this is poor value for money.

If you currently claim, or might in the future claim, means-tested benefits you need to take into account how different ways of taking your pension affect benefit entitlements. This help page sets out how your benefits could be affected depending on the choices you make.

If you are only claiming benefits that are not means-tested, such as Disability Living Allowance or the state pension, then the amount you receive will not be affected by how you take your pension. It might though affect your potential entitlement to means-tested benefits which you could qualify for at a later date e.g. if you lose your job.

How benefits could be affected

The general rule is that anything you take out of your pension is treated as income or capital in the normal way, so may affect the amount you receive. In benefits both income and capital affect the amount you can get, but in tax credits it is only income that matters and savings are not considered except for any interest or dividends you receive. You can use the calculator to do a ‘what if?’ calculation and see how your benefits and tax credits might be affected.

If you take out some or all of your pension as a lump sum, rather than a regular payment, then in benefits it counts as capital. The rules vary depending on whether you are defined as working age or pension age (see below).

If you take your pension and convert it into an annuity then the income you receive will be taken into account when your benefits are calculated. In general this means you will lose some or all of your benefits depending on the amount of your increased income.

If you spend the lump sum the amount you originally received can still be considered in working out your benefits. This is because there are special rules about “deprivation of assets”. In essence these rules stop people altering their income or capital with the intention of securing or increasing benefit entitlement. If the effect of what you have done with your money is to increase your benefit entitlement then, even if the intention cannot be shown, you might be affected by the “deprivation of assets” rules. Guidance from DWP is applied to what is considered reasonable in your particular circumstances.

The rules vary depending on whether you are defined as working age or pension age. The age is set by the minimum age for Pension Credit, which for both men and women increases in line with women’s state pension age (which from April 2014 is at least age 62). For more information see changes to state pension age.

If you are working age

If you are working age any capital (savings) under £6,000 are ignored but above this level they will affect your benefits. The calculation uses a formula which, in effect, assumes that you get interest of 20% of these savings above £6,000.

If you take your pension and convert it into an annuity then the income you receive will be taken into account when your benefits are calculated. In general this means you will lose some or all of your benefits depending on the amount of your increased income.

If you are pension age

If you are pension age any savings under £10,000 are ignored but above this level they will affect your benefits. The calculation uses a formula which, in effect, assumes that you get interest of 10% of these savings above £10,000.

If you take your pension and convert it into an annuity then the income you receive will be taken into account when your benefits are calculated. In general this means you will lose some or all of your benefits depending on the amount of your increased income.

If you do nothing with your pension pot (ie do not take it out or turn it into an annuity) then you will be treated as if receiving an income from your pension pot. The amount you are assumed to receive (your 'notional income') is calculated by the government on the basis of standard tables.

dunstonh

So from what I can gather then. With the new pension rules, anybody who has a pension pot and is able to access it, ie. 55 or or older, will be unable to claim any benefits at all if the pot is more than the savings allowance, and they opt for drawdown?

Drawdown is fine as long as the drawdown rate is broadly in line with the annuity rate. Drawdown is just a regular income from the invested fund. So, its treated as income as an annuity would be.

it is the ad-hoc withdrawals that impact on capital (as per above post).

xylophone

If you are pension age

If you do nothing with your pension pot (ie do not take it out or turn it into an annuity) then you will be treated as if receiving an income from your pension pot. The amount you are assumed to receive (your 'notional income') is calculated by the government on the basis of standard tables.

The important point for the OP is that if her spouse is of pension age and is able to take an income from a pension pot, even if he chooses not to draw an income from it, an amount known as notional income will be taken into account when means tested benefits are calculated.

The OP should declare the existence of the pot for tax credit calculations.

[Deleted User]

Yes that's what I thought, thank you.