Setting up a pension with inheritance money?

dk1971

My mum died last year and I am executor of her will. I have 3 siblings. My parents had written their wills years ago with a Discretionary Trust set up to protect against IHT. This is no longer an issue due to the Residence Nil Rate Band (and the total value of my parents estate will be less than the threshold). So my dad and I are arranging to change my mum's will (and his own) to a standard will where the estate is divided equally between the 4 children.  (I should say we live in Scotland)

At the moment, we are thinking about my siblings and I receiving a share of my mum's savings (which will maybe amount to £25,000 each). The reason for that is partly because my dad doesn't need the money - he has plenty of savings of his own.

My main problem concerns the fact that I am unable to work due to long term illness, and I receive ESA and Council Tax Benefit. So me getting a £25k lump sum right now would be a problem. I had read somewhere that pensions don't count as capital from the point of view of means tested benefits. Could we specify in my mum's revised will that £25k of her savings gets paid directly into a pension for me? I'm 50 years old at the moment and have no private pension and very little savings. So I'm very worried about my future financial situation. And I'm hoping that the pension idea would protect my inheritance and guarantee me a small additional income when I reach pension age. Is this possible?

Any advice would be greatly appreciated.

poppy12345

I don't know about the pension question but your dad giving away money could cause issues for himself if he's claiming any means tested benefits. It could also cause issues in the future, if care is needed. Others will answer the question about the pension i'm sure.

dk1971

poppy12345 said:

I don't know about the pension question but your dad giving away money could cause issues for himself if he's claiming any means tested benefits. It could also cause issues in the future, if care is needed. Others will answer the question about the pension i'm sure.

Thanks for your reply. My dad doesn't receive any benefits. He has 3 private pensions plus a small monthly payout from 2 of my mum's pensions - plus his state pension. 

p00hsticks

There are restrictions on how much you can pay into a pension - as you say you can't work (i.e. have no earned income) then I think the most you can pay into a pension is £2880 a year (which gets tax relief added to take it up to £3600).

xylophone

Could your legacy not be of an amount that would not affect your benefits with the balance to your father who could then choose to make payments (limited as above) into  your pension?


You could open the pension ( stakeholder might do)  example https://www.standardlife.co.uk/c1/accounts-and-services/pensions/stakeholder-pension-features.page

and your father could contribute for a number of years as required?

NedS

dk1971 said:

My main problem concerns the fact that I am unable to work due to long term illness, and I receive ESA and Council Tax Benefit. So me getting a £25k lump sum right now would be a problem.

I don't mean to be judgemental, but I really can not see how for anyone struggling trying to manage on benefits how inheriting £25,000 can be seen as a problem. You now have enough money to support yourself and will no longer be dependent upon the state. Is that not a good thing?

Unfortunately there is no way to protect your inheritance if claiming income based benefits. You will need to declare it, and if you have capital over £16,000 your income based benefits will stop.

calcotti

Is your ESA contribution based or income based - or contribution based topped up by income based? Any contribution based ESA is not affected by capital.

dk1971

NedS said:

dk1971 said:

My main problem concerns the fact that I am unable to work due to long term illness, and I receive ESA and Council Tax Benefit. So me getting a £25k lump sum right now would be a problem.

I don't mean to be judgemental, but I really can not see how for anyone struggling trying to manage on benefits how inheriting £25,000 can be seen as a problem. You now have enough money to support yourself and will no longer be dependent upon the state. Is that not a good thing?

Unfortunately there is no way to protect your inheritance if claiming income based benefits. You will need to declare it, and if you have capital over £16,000 your income based benefits will stop.

Thanks for your reply. My worry is that even though I realise I could easily live on £25k, it would only realistically last me a few years at best. And my medical status is unlikely to ever improve.

So I don't know what would happen when the inheritance money ran out? Would I need to go through the ESA application process from scratch? That prospect fills me with fear.

I had just hoped that a pension idea would give me a small monthly "top up" over and above my benefits rather than getting a lump sum all at one time. 🤔

dk1971

calcotti said:

Is your ESA contribution based or income based - or contribution based topped up by income based? Any contribution based ESA is not affected by capital.

Thanks for your reply. As far as I know it's income based. x

Spoonie_Turtle

dk1971 said:

NedS said:

dk1971 said:

My main problem concerns the fact that I am unable to work due to long term illness, and I receive ESA and Council Tax Benefit. So me getting a £25k lump sum right now would be a problem.

I don't mean to be judgemental, but I really can not see how for anyone struggling trying to manage on benefits how inheriting £25,000 can be seen as a problem. You now have enough money to support yourself and will no longer be dependent upon the state. Is that not a good thing?

Unfortunately there is no way to protect your inheritance if claiming income based benefits. You will need to declare it, and if you have capital over £16,000 your income based benefits will stop.

Thanks for your reply. My worry is that even though I realise I could easily live on £25k, it would only realistically last me a few years at best. And my medical status is unlikely to ever improve.

So I don't know what would happen when the inheritance money ran out? Would I need to go through the ESA application process from scratch? That prospect fills me with fear.

I had just hoped that a pension idea would give me a small monthly "top up" over and above my benefits rather than getting a lump sum all at one time. 🤔

It wouldn't have to run out. You can claim income-based benefits again once you have below £16000 in savings, for which they will make a proportional deduction on any over £6000, leaving you still a very comfortable amount of money to save and/or live on a little extra than you currently do, and you'd just keep them updated with any (reasonable) expenditure so they make smaller deductions as the savings amount decreases. If/when it falls below £6000 it would then make no difference to your benefits* anyway. Yes it would be a hassle to have to go through the assessment again, but if your health has not changed then you know which descriptors should be awarded and why, and you should easily win any appeal if they don't make the correct decision the first time round.

(*Possibly not the case for council tax support but I know nearly nothing about that other than most councils seem to have their own rules.)

I mean, you could try something convoluted with the will but you'd have to read up on the rules about deprivation of / notional capital first - I don't know if future inheritances that would otherwise be certain are included in their consideration or not.

Edit: you need to find out *for sure* which type of ESA it is though.

calcotti

dk1971 said:

calcotti said:

Is your ESA contribution based or income based - or contribution based topped up by income based? Any contribution based ESA is not affected by capital.

Thanks for your reply. As far as I know it's income based. x

As spoonie says, you need to find out for sure. Either look at your award letters or ring ESA to check. It is possible to receive ESA which is both contribution based and income based. In the latter case, as I said earlier, the contribution based part (£113.55/week) would continue regardless of any capital for as long as you are in the Support Group.