Pension credit and Sipp

Oddjob

I receive pension credit. I also have a cash sipp with HL which I have been putting £2800 in each year for the last few years to get the tax relief.

I need some money for some repairs.  If I draw a lump sum from HL to pay for the repairs, will this be classed by the Pension credit people as income when I draw it out?

At the moment it is classed as savings - well I presume it is as I don't draw an income from it and it earns no interest.

If it will be classed as income, what effect will it have on my pension credit please?

xylophone

I receive pension credit. I also have a cash sipp with HL which I have been putting £2800 in each year for the last few years to get the tax relief.

See

https://www.gov.uk/government/publications/pension-freedoms-and-dwp-benefits/pension-freedoms-and-dwp-benefits

If you (or your partner) are over the qualifying age for Pension Credit

Once you (or your partner) reach the qualifying age for Pension Credit, you are expected to use your pension or pensions to help support yourself.

If you choose not to buy an annuity after reaching the qualifying age for Pension Credit, an amount of ‘notional’ income will be taken into account when your benefit is worked out. ‘Notional’ income (in this case) is an amount equivalent to the income you would have received if you had bought an annuity.

If you take an income from your pension pot, the amount which will be taken into account when assessing your benefit will be the higher of the actual income or notional income. If you take a cash lump sum, this will be taken into account as capital.

It is your responsibility to tell DWP – and your local council where appropriate – if you or your partner take any money from your pension pot.

Oddjob

xylophone said:

I receive pension credit. I also have a cash sipp with HL which I have been putting £2800 in each year for the last few years to get the tax relief.

See

https://www.gov.uk/government/publications/pension-freedoms-and-dwp-benefits/pension-freedoms-and-dwp-benefits

If you (or your partner) are over the qualifying age for Pension Credit

Once you (or your partner) reach the qualifying age for Pension Credit, you are expected to use your pension or pensions to help support yourself.

If you choose not to buy an annuity after reaching the qualifying age for Pension Credit, an amount of ‘notional’ income will be taken into account when your benefit is worked out. ‘Notional’ income (in this case) is an amount equivalent to the income you would have received if you had bought an annuity.

If you take an income from your pension pot, the amount which will be taken into account when assessing your benefit will be the higher of the actual income or notional income. If you take a cash lump sum, this will be taken into account as capital.

It is your responsibility to tell DWP – and your local council where appropriate – if you or your partner take any money from your pension pot.

I'm still not really understanding, from your link, it says -

If you do not take your pension, it will not be taken into account when your entitlement to contributory benefits is worked out. Any cash lump sum you take that is deemed to be capital will not affect entitlement to a contributory benefit.

So does that mean it will not effect my weekly entitlement?

I should perhaps add that I live alone and have no other income.

QrizB

Oddjob said:

I'm still not really understanding, from your link, it says -

If you do not take your pension, it will not be taken into account when your entitlement to contributory benefits is worked out. Any cash lump sum you take that is deemed to be capital will not affect entitlement to a contributory benefit.

Those sentences only apply to contributory benefits (ESA and Jobseeker's Allowance), not to Pension Credit.

If you look at the text xylophone quoted:

If you choose not to buy an annuity after reaching the qualifying age for Pension Credit, an amount of ‘notional’ income will be taken into account when your benefit is worked out. ‘Notional’ income (in this case) is an amount equivalent to the income you would have received if you had bought an annuity.

Assuming you've told DWP about your SIPP, DWP will/may have already reduced your Pension Credit to reflect the value of the SIPP.

If you take a cash lump sum, this will be taken into account as capital.

So if you take, say, £5000 from your SIPP, this will now count as savings rather than a pension. It says here:
https://www.gov.uk/pension-credit/eligibility

If you have £10,000 or less in savings and investments this will not affect your Pension Credit.

If you have more than £10,000, every £500 over £10,000 counts as £1 income a week. For example, if you have £11,000 in savings, this counts as £2 income a week.

Depending on how much you take, it might affect your Pension Credit.

Oddjob

Thank you, that has made it clearer, sorry for being a bit thick, it confuses me.  Isn't the money which isn't being drawn in the Sipp counted as savings then?

Oddjob

At the moment, I have a bank savings account with £3250 in it, soon to be reduced by £2800 when I put it in the SIPP for the tax relief.   My HL Sipp account has £5435 plus £500 in drawdown.

I did try to draw £5000 last year from my SIPP, but they had the wrong tax code for me and I got stopped over £1300 in tax, I shouldn't have to pay tax as I am not earning anything, so can claim that back when they have sorted it out. 

It actually ended up with me having to have a compliance interview with someone from Pension Credit because HL pay out of their wages account and when the tax office got the tax, they contacted Pension Credit and told them it was earnings, they thought I was working for HL.  It was sorted out.  HL also wrote to them to tell them that it was a pension lump sum I had drawn, not earnings as such.

Alice_Holt

It's important that you tell the DWP about your SIPP.  If you have not, then there are likely to have been PC overpayments, which the DWP will recover from you.


If you withdraw money from your SIPP, that money will be classed as savings as it is now outside of your pension.

The money left in your SIPP pension account is not included as savings by the DWP (so not included within the £10k savings threshold).  But, they do expect you to take a retirement income from it when you reached SPA. If you don't take income, then they will assume a notional income amount (see the above posts) which reduces any PC due to you. 

If you have not declared the SIPP when applying for PC, you now need to tell the DWP about the SIPP to avoid further PC overpayments.

Oddjob

I have told them about the Sipp, they asked for statements which I sent.

How do they work out the Notional income?

Dazed_and_C0nfused

I did try to draw £5000 last year from my SIPP, but they had the wrong tax code for me and I got stopped over £1300 in tax, I shouldn't have to pay tax as I am not earning anything, so can claim that back when they have sorted it out. 

Did you take £5,000 or not?

If so and it was the first payment from this SIPP then you should have had tax deducted when the payment was made.

That is quite normal and not a mistake by HL or HMRC.

I don't understand what there is for anyone to sort out?

You can either claim any overpaid tax back or simply wait for HMRC to refund it after the end of the tax year.

https://www.gov.uk/tax-overpayments-and-underpayments

Oddjob

I asked for £5000 and got it, less the tax that was paid on it.  It was the first payment, I needed it to change my car.

I knew that tax would be deducted but didn't expect it to be quite as much.

The thing that needs sorting out is my tax code which I am waiting for the tax office to sort out, as you say, at the end of the tax year. 

p00hsticks

Oddjob said:

I shouldn't have to pay tax as I am not earning anything,

Donlt forget that any State Pension you receive is taxable but tax is not deducted at source. It therefore reduces your avaiable tax allowance for other income ....