Pension effect on JSA

Cryptic33

Hi,

I will try to be brief. I am about to take my pension under the new 2016 rules. That is 25% tax free lump sum and the rest as an annuity. I have used the pensionwise site and spoken to two financial advisers as well as my job coach at the local jobcentre plus. I am a little confused.

As I understand it, my income based JSA is means tested. Therefore any pension will be considered as income and thus my JSA will be reduced pound for pound. My question is if the pension (less than £20 per week) is classed as income, why am I not allowed the £5 waiver applied to other forms of income such as part-time wages? Taxable income is taxable income, no?

HappyMJ

Cryptic33 wrote: »

Hi,

I will try to be brief. I am about to take my pension under the new 2016 rules. That is 25% tax free lump sum and the rest as an annuity. I have used the pensionwise site and spoken to two financial advisers as well as my job coach at the local jobcentre plus. I am a little confused.

As I understand it, my income based JSA is means tested. Therefore any pension will be considered as income and thus my JSA will be reduced pound for pound. My question is if the pension (less than £20 per week) is classed as income, why am I not allowed the £5 waiver applied to other forms of income such as part-time wages? Taxable income is taxable income, no?

Why don't you leave it to grow until you are no longer claiming income based benefits? There would be no point claiming your pension early if you are going to lose every pound that you claim.

atush

why are you taking the pension now? How old are you? Is buying an annuity now the best thing to do?

I too would wait until I was actually retired, rather than having such a small income affect benefits. The fact you are reciving JSA means you want to work. if you get a job, the pension will be taxed at your highest rate.

If you need money, and want to take the 25%, and it doesnt affect your benefits, then do so and dont buy the annuity until later.

Cryptic33

Thank you for the replies thus far. I have my reasons for taking my pension now, the question is about the £5 waiver, please address answers to this specific point. Thanks.

Cryptic33

Just spoken with the benefits helpline and they said they deduct pound for pound although they do not know why there is a distinction between pension income and any other form of taxable income. I am now waiting for a response from a process adviser.

speedyrite

I'm probably wrong but my understanding is that the disregard only applies to "earned income" (i.e. arising from employment) and that pension income is treated as "unearned income".

WillowCat

speedyrite wrote: »

I'm probably wrong but my understanding is that the disregard only applies to "earned income" (i.e. arising from employment) and that pension income is treated as "unearned income".

No, you are correct. There are a few exceptions, but income from an occupational pension is not one of them. From the horses mouth : https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/509886/dmgch28.pdf

from paragraph 28090....

OP, you may have your reasons for taking your pension now, but getting snippy with posters who are trying to help you avoid making an expensive mistake is not very nice.

We may be able to help you access your pension (or at least part of it) without it being subject to income rules at all, but if you don't want to know.......

xylophone

If the OP is below PC age and has ( or can arrange) a drawdown pension, could he not simply take the PCLS (assuming below capital rules) and continue to receive the same amount of JSA (Inc)?

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/417473/pension-flexibilities-dwp-benefits.pdf

atush

Well that is what i was getting at, but the OP didnt want to know.

Why the money is needed does matter, as there could be other options.

System

Cryptic33 wrote: »

Hi,

. I am about to take my pension under the new 2016 rules. That is 25% tax free lump sum and the rest as an annuity.

That's the old rules surely? New rules would give you the freedom to be cleverer than that, as others have tried to indicate.

jamesd

Cryptic33 wrote: »

I am about to take my pension under the new 2016 rules. That is 25% tax free lump sum and the rest as an annuity. ... my JSA will be reduced pound for pound. My question is if the pension (less than £20 per week) is classed as income

Others have addressed why it's classed as income but that's only part of the answer because it is not necessary to have it treated as income at all if you just change how you take it.

An alternative option that will save you that benefit money is to take it as a lump sum. This is subject to the savings rules, so to avoid losing benefit you can just choose to take enough so that you stay under the savings limits that apply to the benefits you're getting. Council tax benefit limits are different for each council so it's not possible to say what that limit is, you'll need to check your local council.

I don't know what the annuity rate you're getting is but I'll assume that it is about 5% of the amount being spent and that the amount left after taking a £6,933 tax free lump sum is £20,800.

Since I don't know your council's savings cap I'll assume that it is £5,000 and this is less than the other benefit caps so it's the one that you need to stay under. To do that you'd just take a UFPLS lump sum of £5,000 minus any other savings you have. UFPLS lump sums are 25% tax free and 75% taxed. You just repeat this each time you get close to no savings until you have either taken all of the pension or reach your pension credit age. Your pension credit age matters because from that age you will be assumed to have income from the pension at annuity rates even if you don't actually have it.

There is another advantage to doing this. Annuities normally offer much less income per Pounds spent than deferring the state pension, so if you're able to do it, that is a better option than buying an annuity. Sometimes annuities for those in poor health or old ones with guaranteed annuity rates can pay more than deferring the state pension.

While you're clearly interested in a specific answer, that doesn't appear to be the most helpful answer in your situation, when it may be possible to avoid the problem just by changing how you do things.