Is a pension plan disregarded as capital for IRESA and HB

bkmla

This enquiry is in respect of whether money invested in a pension plan is disregarded for the purposes of calculating someone’s capital in connection with claims for Income Related Employment Support Allowance (IRESA) and Housing Benefit (HB).

 

I am 62 years old and in receipt of IRESA and HB.

 

Recently, I learned that if I take out a self-invested personal pension (SIPP) and pay into it £2880 in this fiscal year, the Government will pay into my fund an additional £720, which will boost my fund to £3600.

 

This represents virtually a 25% return on my money, whereas an easy access deposit account offers somewhere in the region of 1.3%

 

I plan to withdraw £2880 from a bank account and pay it into a SIPP. Next financial year I plan to pay into the SIPP a regular monthly amount. So over the course of the year the sum in the fund should grow.

 

At the moment my capital for the purposes of IRESA and HB is £6137. This sum is held in various bank accounts. Consequently, my IREA payment has been reduced by £1, weekly.

 

I understand that capital invested in a pension plan is, for the purpose of IRESA and HB, disregarded as capital.

 

Am I right in assuming that any money that I invest in a SIPP will be disregarded as capital in respect of my claim for IRESA and HB? Or does the disregard only apply to a pension plan taken out prior to a person’s current claim for these benefits?

 

If money invested in a SIPP is indeed disregarded as capital for the purpose of IRESA and HB, officials administering my claims may misconstrue my motive for withdrawing money from my bank account to pay into a SIPP. They might conclude that I have done so in order to claim a higher level of benefit, which is disallowed under current IRESA and HB regulations.

 

However, this is not the case here. I would be withdrawing funds from my bank account to deposit in a SIPP to maximise the return on my money. Therefore, the increase in my benefit would be a consequence rather than a motive.

If someone could advise me in this matter and cite IRESA and/or HB regulations and Tribunal cases (if relevant), it would be very much appreciated.

 

 

 

calcotti

Capital in a pension fund is ignored as capital. As you say, it is possible that DWP will treat this as deprivation of capital. However as they are only deducting £1/week from your ESA even if they continue to do this it doesn’t appear to be a hugely significant factor to influence your decision.

For ESA see https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/865730/dmgch52.pdf paragraphs 52457 and 52458 refer.

For HB if you are receiving income based ESA your capital is ignored anyway.
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/365782/hbgm-bw1-assessment-of-capital.pdf paragraph W1.180 (iii).

[Deleted User]

There is a flaw in the plan that being that pension investments especially in the shorter term can go down as well as up, just look at the last week when shares have lost 15% of their value in five days, and remember when you take money out of a sipp whilst 25% of it is tax free the rest is taxed at a nominal rate, thus negating the 20% gain.
And yes for those who take notice I'm back, but only on and off x

bkmla

Re 'There is a flaw in the plan that being that pension investments especially in the shorter term can go down as well as up...'

I was considering not investing in stocks and shares, but keeping my fund in cash. There probably wouldn't be any capital appreciation, but my money would be safe and I would still be eligible for the 25% tax credit.

Re '...and remember when you take money out of a sipp whilst 25% of it is tax free the rest is taxed at a nominal rate, thus negating the 20% gain.'

I probably won't withdraw any monies from the SIPP until I'm retired.

At the moment the state retirement pension, which will be my only taxable income, is around £8750,  and the personal allowance is £12500.

So, in due course, if I want to withdraw money from the SIPP I'll aim to do it in a way that keeps my taxable income equal to my personal allowance.

Galloglass

The 25% uplift on a Cash SIPP for someone on IRESB may be a bit tricky. The 25% is just the person getting their tax back that they have paid to HMRC. Do you earn enough to recover the 25% from Income Tax?

https://www.bestinvest.co.uk/pensions/sipps/tax-benefits-of-a-sipp

calcotti

Galloglass said:

The 25% uplift on a Cash SIPP for someone on IRESB may be a bit tricky. The 25% is just the person getting their tax back that they have paid to HMRC. Do you earn enough to recover the 25% from Income Tax?

https://www.bestinvest.co.uk/pensions/sipps/tax-benefits-of-a-sipp

That's incorrect. For a low earner they can qualify for a government top up even if they do not pay income tax.
https://www.moneyadviceservice.org.uk/en/articles/tax-relief-on-pension-contributions
"If you have no earnings or earn less than £3,600 a year, you can still pay into a pension scheme and qualify to have tax relief added to your contributions up to a certain amount.

The maximum you can pay is £2,880 a year. Tax relief is added to your contribution so if you pay £2,880, a total of £3,600 a year will be paid into your pension scheme, even if you earn less than this or have no income at all."

Galloglass

Thanks for correcting me. I am all in favour of free money within the rules.