Withdrawing some pension while on universal credit

another_casualty

Howdy!
Going through a very tough time at the moment .
I have been on universal credit since January . My first payment in March , so not technically sure how long it is classed as me being on universal credit .

The only positive in my life , is that I am mortgage free albeit in a small flat and still paying service charges.
Being on low paid jobs all of my life , I have a couple of tiny pensions in the scheme of things .

Now , here's my quandary : I need to take out a chunk of my pension to clear my overdraft, get rid of credit card debt and buy a new boiler .
So, you could say, the rainy day has come . More like a downpour .
I've looked into my Hargreaves lansdown sipp.
I do understand that I can get 25% tax free etc from my withdrawal.
I'm hoping to get that before xmas.
Looking at the minefield , there are so many barriers and safety nets making sure I'm not doing the wrong thing . Looking at the forms it's worse than voting pro / against brexit . Quite complicated.

I have decided Drawdown is best in my circumstances. Reason being that it is more accessible and if I get into trouble again( fingers crossed I don't ), then I could withdraw a ltd amount each year for some time

I've now come down finally , to the questions that hopefully you kind folk can advise me with ?

1) How much am I allowed to withdraw from my sipp without universal credit clamping down on me and making life tougher than £317 per month ? I am looking to withdraw less than £10k
2) if I do choose drawdown , am I allowed to have a monthly payment into my bank account without universal credit punishing me? Do I get taxed on the monthly withdrawal?
If I was allowed , I was looking at £300 per month max.
3) if I did withdraw an amount , is it possible not to touch the rest and leave until I needed a small sum( less than £4K )? Would that be taxed?

If I'm lucky to get employment again , it will be unlikely I will get a job for approx 6 months as I'm on a work related programme due to disability. I'm also due to attend court soon appealing for ltd capability for work,, and should I win ( unlikely) I may get paid extra from universal credit .

I'll leave it there for now, as this is getting long.

Thanks in advance

Dazed_and_confused

A pension really isn't a "rainy day fund".

How old are you?

If you take 1p in taxable income you will be limited to how much you can into a defined contribution pension (such as a SIPP) in future. Maximum of £4,000/year gross currently.

1). Might be more suited to the benefits board.
2). Might be more suited to the benefits board.
2a). All depends on what other income you have in the same tax year. But no tax would be deducted when the payment was made if it was only £300.
3). Depends on what other taxable income you have in the same tax year.

I suggest the next thing you look at is what type of drawdown payment you want to take. The two basic options are where you take 25% of the fund all in one go and that is tax free. Any subsequent withdrawals are taxable income.

Or you don't take any tax free lump sum up front but each payment you take is split 25% tax free, 75% taxable income.

another_casualty

Thanks for your swift assistance dazed and confused .
I'll be 57..very soon :eek:
I was looking at flexible drawdown .

I could also post an abbreviation of this post on the Benefits board . Thanks for that .

ermine

another_casualty wrote: »

1) How much am I allowed to withdraw from my sipp without universal credit clamping down on me and making life tougher than £317 per month ? I am looking to withdraw less than £10k

Nothing. For God's sake don't do it to yourself.

For Universal Credit non-work income means money that doesn't come from work or benefits. This includes the following types of non-work income:

• occupational or personal pensions

...
Non-work income is taken fully into account. This means that for every pound you get, your Universal Credit will be reduced by a pound.

UC is evil. They should make the evil sonofabeatch IDS live off it for a year.

Dox

If you take money from your pension, your UC payments will be reduced on a £ for £ basis.

Edit: just spotted the post above has said exactly the same thing - but I'll leave this post anyway to make quite sure you've seen and noted the comment.

NedS

There is an alternative for you - to crystallise a portion of your pension and only take the 25% tax free lump sum. By NOT taking any income, only the tax free lump sum, the lmp sum will be treated as capital and not income, and so long as your total capital is below £6K it will not affect your UC claim.

Suppose you crystallised £24K and took 25% of that as a tax free lump sum (£6K), and have no other capital then this would have no effect on your UC. But as others have said, any drawdown income you draw from the remaining £18K will be treated as income and your UC will be reduced pound for pound in that month, so if you do need to take income, it would be advantageous to take it all in one month rather than splitting it equally in monthly payments over the course of the year.

ermine

NedS wrote: »

so if you do need to take income, it would be advantageous to take it all in one month rather than splitting it equally in monthly payments over the course of the year.

That's an interesting twist if true - so by kissing goodbye to one month's £317 the OP could take his lump sum and any amount within that month? There is no annual income qualification at all?

NedS

ermine wrote: »

That's an interesting twist if true - so by kissing goodbye to one month's £317 the OP could take his lump sum and any amount within that month? There is no annual income qualification at all?

That's correct, UC is a monthly benefit and income is treated on a monthly basis in the month in which it is received. The only exception to this is the surplus earnings rule, whereby if a very large amount of income is received in a single month, any surplus income carries forward to future months. At present, surplus earnings are earnings more than £2500 over the point where your UC payments stopped. To give an example, the OP would need earnings of around £500 to nil his £317 UC payments. So if he had earnings of £5000 in one month, the first £3000 (£500 + £2500) would be OK, and the remaining £2000 would be deemed surplus earnings and would be taken into account in the following assessment period(s).

So for the OP's purposes, earnings of £3000 would result in a loss of one month's UC of £317.

I am not 100% sure if surplus earnings apply to pension income (unearned income) or if they only apply to earned income from employment, so would be best to check this first before basing any pension withdraws on this.

WillowCat

NedS wrote: »

I am not 100% sure if surplus earnings apply to pension income (unearned income) or if they only apply to earned income from employment, so would be best to check this first before basing any pension withdraws on this.

No, pension income isn't subject to the surplus earnings rules, for the simple reason it isn't considered earnings (and thus tapered at 63% rather than 100% for pensions which is classed as unearned income).

However if you take lump sums out of your pension it is considered capital rather than income and only subject to the capital rules. These lump sums must not be on a recognisable timescale - so you can't for example take out £6k each year. If you did, they would see a pattern and average out the pension income and deduct each month.

In the OP's situation, he can take out more than £6k if he immediately uses any sum over that to pay off debt. Paying debt is never considered deprivation of capital and therefore is OK.

If your boiler is needing replacement, you can also have the money for that disregarded before it's spent as an essential repair.

If you are unlucky enough to not get a job in the near future, then the best way to supplement your income is to gradually spend down the capital you have taken out of your pension (i.e. the £6k you have left after buying the boiler and paying your debts), then gradually get back into debt on your credit cards/overdraft, then eventually repeat the whole drawdown pension, pay off debts and give you another £6k savings. Hopefully that would take you a year or three between drawdowns and would therefore not be considered you taking extra income.

another_casualty

Apologies for missing the last couple of posts . I've been busy trying to finalise things .
Here's a brief update : I spoke to Hargreaves lansdown a couple of times to discuss the best option . I went for drawdown .
After discussing the amount , I changed my mind at the last minute to withdraw £8,000. Please don't judge me too harshly here but I got a new sofa which has to be paid for , plus I'm not far off of overdraft limit , plus I have to get a new bed ...and a boiler !
I have service charges to pay every 6 months . Universal credit refuse to help with that at the moment .

As soon as I get funds , the credit card payment for sofa and overdraft will put me around the £6,000 mark or under. As I've got no help with the boiler , I will be well below that should I have to get a new one anytime now . I'm hoping that universal credit won't be too hard on me as I'm trying to get to grips with it all . £317 pm is hard

ermine

another_casualty wrote: »

but I got a new sofa which has to be paid for , plus I'm not far off of overdraft limit , plus I have to get a new bed ...and a boiler !
I have service charges to pay every 6 months . Universal credit refuse to help with that at the moment .

As soon as I get funds , the credit card payment for sofa and overdraft will put me around the £6,000 mark or under.

I would venture you have wider problems than UC, although I am glad you got help to get best use out of that Take a look at the Debt-free wannabe board, and how people use a Statement of Affairs (SOA) to bring spending on non-essentials down.