Does an inherited SIPP count as 'wealth' for a (support group) ESA claimant?

BobWelham

If an ESA claimant (support group) has more than £16,000 in cash savings/shares/gilts/corporate bonds/property etc. then his/her ESA benefits are negatively affected.
However, the ESA claimant's own pension assets (including SIPPs) and a single dwelling owned and occupied by the claimant are not considered to be relevant wealth.
So far so good.
Now suppose that the ESA claimant inherits a stocks&shares SIPP from someone who died aged (say) 80.
Question: Does this inherited SIPP count as 'wealth' for the ESA claimant as, for example, would be the case for bare inherited shares?
Or does it enjoy the same exemption as the ESA claimant's own SIPP?

bowlhead99

BobWelham said:

Or does it enjoy the same exemption as the ESA claimant's own SIPP?

You are saying the person has inherited the SIPP. So it *is* his own SIPP. It is a self invested personal pension for which the person is the beneficiary. Which is the same status as the various SIPP (s) that he had funded himself.

BobWelham

There are some techniical differences, and maybe the devil is in the detail.
In contrast to an 'original' SIPP (let's call it that for convenience) an inherited SIPP cannot be paid into.
The inherited SIPP does not count towards the Lifetime (pension) Allowance (LTA) of its owner.
These distinctions are not relevant here, but I thought that I would mention them.

More to the point, an inherited SIPP can be accessed as soon as it is inherited, an original SIPP can be accessed only if its owner is older than 10 years below the State Pension Age (SPA).
Note that a disabled, long term ESA claimant has NI contributions credited on his/her behalf, and that at SPA the ESA ceases and the State Pension begins.
There are three time periods to consider:
(1) Aged up to SPA minus 10. The fact that the inherited SIPP can be accessed by the ESA claimant might qualify it as non-exempted wealth, in contrast to the specifically exempted original SIPP. As such it will negatively affect the (means tested) ESA benefit, even if it is not actually accessed. I am yet to find a definitive answer to this potential pitfall.
(2) The 10 years immediately before SPA. Here I think that in addition to (1) above, drawdown from the original SIPP might also negatively affect the ESA benefit. Again I do not have a definitive answer.
(3) After SPA. No problem since ESA has ceased and the State Pension is not affected by private pensions of either sort.

bowlhead99

BobWelham said:

More to the point, an inherited SIPP can be accessed as soon as it is inherited, an original SIPP can be accessed only if its owner is older than 10 years below the State Pension Age (SPA).

Actually an original SIPP can be accessed if its owner is age 55. There isn't yet a direct link to the state pension age. Anyone becoming eligible for state pension in May this year will be at 65 and 9 months; but could have accessed their private pension at age 55 which was more than ten years earlier; people retiring next summer at age 66 could have been enjoying their private pension withdrawals for 11 years.

(1) Aged up to SPA minus 10. The fact that the inherited SIPP can be accessed by the ESA claimant might qualify it as non-exempted wealth, in contrast to the specifically exempted original SIPP. As such it will negatively affect the (means tested) ESA benefit, even if it is not actually accessed. I am yet to find a definitive answer to this potential pitfall.

If you take a look at the Decision Maker's Guide section relating to income available 'on application'  (i.e. income you could get but might choose not to take...) - see para 28593 / 28594
 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/843584/dmgch28.pdf
This explains that generally income that you could get on application is treated as notional income for the income means-test but one of the exceptions is "payments from a personal pension, occupational pension, or the Pension Protection Fund when the person is under the qualifying age for SPC".  So if you are not old enough for state pension credit you are not forced to recognise pension income that you could get your hands on but would reduce your retirement income in later life.

Then on the capital side:
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/843585/dmgch29.pdf explains at para 29426/ 29427 that the value of the right to receive a personal pension and any funds held under a personal pension scheme is disregarded from capital indefinitely

So essentially If your pension pot remains untouched and you are below State Pension age, its value is ignored as a capital asset  (so doesn't count towards the £16k capital limit of means-tested benefit claims) and they will not treat you as having notional income from it.  in relation to means-tested benefits 

However, if you do actually take a lump sum from your pension pot, as partial drawdown or the whole amount, it can be treated as actual capital in the means-test, and if you take regular payments from the pension pot they can be considered as actual income in the means-test (because they are).

(2) The 10 years immediately before SPA. Here I think that in addition to (1) above, drawdown from the original SIPP might also negatively affect the ESA benefit. Again I do not have a definitive answer.

As above, if you don't draw it down from the SIPP (even though you could if you wanted to) it will not be counted as income. If you do do drawdown from the SIPP it will be counted as income (if you are drawing an income) but if you are drawing only tax free lump-sums they would be counted as capital.

(3) After SPA. No problem since ESA has ceased and the State Pension is not affected by private pensions of either sort.

After SPA you are right that ESA has ceased ,but if you are looking to claim any other means-tested benefits, be aware that for some of them it may be assumed that you could draw an annuity income from the value of your pensions even if you only choose to take very little income because you want to let someone else inherit the balance eventually...

BobWelham

Thank you so much, bowlhead99.
I did not know of the existence of such a comprehensive document as the Decision Maker's Guide and even if I had I doubt that I could have navigated to the relevant paragraphs. The information that you have elucidated is way beyond what I have been able to glean from both the CAB and from an IFA, though both did their best, so I am not criticizing them.
I am in the delicate position of wanting to nominate as the beneficiary of my SIPP a disabled close family member, whom I trust absolutely.
I am wary of leaving a poisoned chalice and your expert help has clarified the position immensely.
Thank you once again, you are a star!

bowlhead99

Thanks, though I'm not a benefits expert and all the comments here are discussion rather than advice of course, which is why it's free; but also you should get comfortable with the available information yourself. For example there is no exact definition of 'Capital' in the legislation that makes the benefits available, but that's why there is guidance available to people who might be considering whether there is a deliberate deprivation of capital or income for someone who gives away or fritters away capital or doesn't choose to take income available to them, which are situations that those pdfs help to cover.

My own family's experience of receiving an 'inherited' personal pension was when the person who passed on was under 75 and had not crystallised any of the benefits so it was just made available as a tax free cash payment.  In your case if the person dies at (say) 80 as you suggest, the payments will not be tax free and you would generally expect to get the ability to maintain the money or assets inside the pension wrapper until you want it. Check with your provider on the options that would be made available to someone who received a payment at the trustees discretion after you had passed having given them an expression of wishes nominating that person.

jamesd

Leaving pensions to grandchildren can be a useful tax reduction tool if the giftor is 75 or older when they die. Before that age money  can be taken out tax free. After, it's added to the recipient's income as it's withdrawn. Babies and children get their own income tax personal allowance so can get £12,500 a year out tax free anyway. Their trustee can use this for the child's benefit including for food, clothing, housing and education.

I don't think that babies and children can be benefit claimants so there's potential legal tax avoidance scope there.

BobWelham

Thanks jamesd. Your comment set me thinking and prompted my new thread on Inherited SIPPs.