UC and Pension Drawdown

Dullville

Considering withdrawing 3k from my pension as a lump sum.
Im on UC with LCWRA.
1.So do I need to inform UC I have received 3k if I go decide to withdraw it as I’m aware it’s under the 6k limit savings( I’ve got no other savings).
2. Will I lose my my UC payment for the AP the 3k is received in? Will it be classed as income?
3. Will my pension fund still be disregarded for benefits if I do a one off withdrawal?
Tried to search for the guidance myself but it’s very unclear.
👍

Dazed_and_C0nfused

Need more detail.

Is this £3k a TFLS?

Or all taxable income?

Or a mix?  If it's a mix is it £750 TFLS and £2,250 taxable income?

calcotti

1. I think it's probably sensible to put a note in your journal. I have made a lump sum withdrawal of £3000 from a pension fund. My total capital is still xxx. I understand this not affect my UC.
2. A one off withdrawal is treated as capital. If you receive regular payments it would be treated as income and deduced £1 for £1 from UC (so no point in doing that).
3. The remaining pension pot will still be disregarded.
ADM chapter H5: Unearned income (publishing.service.gov.uk)

Income and capital drawdown
H5174 Whilst a claimant’s pension pot is held by the pension provider then the value of the right to that sum falls to be disregarded as capital for the purposes of UC . Pension flexibilities allow people to withdraw money from their pension pot. This is known as a drawdown. If the claimant has withdrawn money from their pension pot then a determination has to be made as to how this is to be treated for the purposes of UC. 

H5175 Where a claimant chooses to
1. take ad-hoc withdrawals or
2. take the whole sum then the amount withdrawn falls to be treated as capital. (see ADM Chapter H1).

H5176 Where a claimant chooses to withdraw amounts on a regular basis then those amounts fall to be treated as income and taken into account as such.

calcotti

Dazed_and_C0nfused said:

Need more detail.
Is this £3k a TFLS?
Or all taxable income?
Or a mix?  If it's a mix is it £750 TFLS and £2,250 taxable income?

Don't think any of that is material to UC.

Dullville

calcotti said:

1. I think it's probably sensible to put a note in your journal. I have made a lump sum withdrawal of £3000 from a pension fund. My total capital is still xxx. I understand this not affect my UC.
2. A one off withdrawal is treated as capital. If you receive regular payments it would be treated as income and deduced £1 for £1 from UC (so no point in doing that).
3. The remaining pension pot will still be disregarded.
ADM chapter H5: Unearned income (publishing.service.gov.uk)

Income and capital drawdown
H5174 Whilst a claimant’s pension pot is held by the pension provider then the value of the right to that sum falls to be disregarded as capital for the purposes of UC . Pension flexibilities allow people to withdraw money from their pension pot. This is known as a drawdown. If the claimant has withdrawn money from their pension pot then a determination has to be made as to how this is to be treated for the purposes of UC. 

H5175 Where a claimant chooses to
1. take ad-hoc withdrawals or
2. take the whole sum then the amount withdrawn falls to be treated as capital. (see ADM Chapter H1).

H5176 Where a claimant chooses to withdraw amounts on a regular basis then those amounts fall to be treated as income and taken into account as such.

Thank you.
So it won’t even affect the AP that I receive the money in?

calcotti

Dullville said: So it won’t even affect the AP that I receive the money in?

No. It’s treated as capital and your capital remains below £6000.

Dullville

Thank you calcotti.
very helpful. 👍

Dullville

Dazed_and_C0nfused said:

Need more detail.

Is this £3k a TFLS?

Or all taxable income?

Or a mix?  If it's a mix is it £750 TFLS and £2,250 taxable income?

Yes it will be a mix , 25% TFLS and the rest taxable.

Dazed_and_C0nfused

The 75% will be reported to HMRC through the Real Time Information system and that usually then gets passed on to DWP for UC purposes but I will bow to calcotti's greater UC knowledge here 

Dazed_and_C0nfused said:
Need more detail.
Is this £3k a TFLS?
Or all taxable income?
Or a mix? If it's a mix is it £750 TFLS and £2,250 taxable income?

Don't think any of that is material to UC.

NedS

Dazed_and_C0nfused said:

The 75% will be reported to HMRC through the Real Time Information system and that usually then gets passed on to DWP for UC purposes but I will bow to calcotti's greater UC knowledge here 

Dazed_and_C0nfused said:
Need more detail.
Is this £3k a TFLS?
Or all taxable income?
Or a mix? If it's a mix is it £750 TFLS and £2,250 taxable income?

Don't think any of that is material to UC.

Correct, it will show on the RTI system as taxable income.

If it's a one off lump sum payment, then it falls as capital. If it's a regular (monthly) payment, then is falls as other income. Either way, it is the claimant's responsibility to declare it to DWP / UC and UC will treat it as capital or income as appropriate. In this case, as it's a one off lump sum, it would be treated as capital, and will only affect the UC claim if it takes the claimant's capital over the £6k (or £16k) threshold.

WillowCat

It's correct that the taxable element will show on RTI.  You may need to request that it isn't treated as income for UC, as it may come through automatically as such.  Unless you've managed to sort out your tax code with the pension company before you do the drawdown, they will use month 1 rules and you will be taxed.  You can make a tax reclaim if your overall taxable income is under the personal allowance, but if you have any earned income in the same tax year UC will treat the tax reclaim as earned income.