Personal pension and Benefits

mrsdoyle

Hi,I have a personal pension of £30000 which matured 2 years ago when I was 60,I receive Income related ESA support group.I have savings of £1000.If I were to withdraw say £2500 using flexi access drawdown,would this affect my benefit?If I were to take smaller amounts in the future on a Ad Hoc basis would this affect my benefit?.Is there a situation where the DWP would say that I potentially have access to the full £30000 (minus relevant tax being paid).I understand that having savings up to £6000 is allowed,so I would not exceed this.Many thanks.

xylophone

https://www.gov.uk/government/publications/pension-freedoms-and-dwp-benefits/pension-freedoms-and-dwp-benefits

jamesd

Once you reach Pension Credit age it's all counted. Until then only the portion from which you've taken benefits. The distinction between income and capital matters, avoid creating a regular stream of payments that could look like income.

Everything in a flexi-access drawdown account counts, whether you've withdrawn it or not. This is because a flexi-access drawdown account is created normally after taking a tax free lump sum, which means that you've taken benefits from the 100% not just the tax free 25%. Even if you've withdrawn none of the 75k.

It appears that you may have been inadvertently committing benefit fraud since you took the tax free lump sum, if you did.

Some examples:

1. 100k pot, take tax free lump sum and put 75k into a flexi-access account, withdrawing nothing. You have 100k capital for means test.
2. 100k pot, take 10k tax free from 40k, place the 75% into flexi-access drawdown account, withdrawing nothing. You have 40k capital for means test and the other 60k is still disregarded until you take something or reach pension credit age.

However, personal pensions don't normally "mature", so what actually happened at 60?

mrsdoyle

Thanks for your reply,The £30000 is currently sitting in a pension company untouched,They do not offer flexi drawdown,so I will have to transfer to another company) I say matured as this was my chosen retirement date (60) As my savings dwindled to below £6000,a job centre advisor suggested I apply for Income related ESA which I did,filling in a ESA3 form,telling the DWP of my savings and the pension pot and my intention at that time not to access any monies. I spoke to someone at the DWP and they said this was fine and would not affect my IR ESA support benefit.So what do you think based on these figures?

jamesd

That's a relief, glad it was just age 60.

For your situation the best way to take money out is probably UFPLS. Even many older plans can handle that. UFPLS takes benefits from only the amount taken out, leaving the rest untouched and still not counting towards the benefits means test. So taking 2500 would still leave the remaining 27500 not affecting benefits. 25% tax free, 75% taxable and you will have at least basic rate and possibly higher rate because HMRC requires firms to tax it as if you'll get the same every month. You can reclaim the excess tax from HMRC, P55 is probably the form to use.

Some benefits have lower savings limits, particularly housing or council tax benefit that can be different for every council. Worth checking if these might be relevant.

In addition to savings limits, you can take more for necessary capital spending like replacing broken appliances or worn out furnishing. Only the part not used for this type of spending will be used in the savings calculation.

If you haven't had a full benefits check, Citizens Advice offers one and might find other benefits.

You're potentially eligible for free insulation (really no cost at all) if you own your own home, maybe other heat-related help.

If you think you might be taking pension money again, please check how the money is invested inside the pension so we can verify that the investments are appropriate.

mrsdoyle

Thank you for your help and guidance.