Top up pension to reduce social care costs?

RudolphHucker

Hello,

My brother-in-law had a stroke and is now bed ridden and needs care at home.

He has capital above the lower capital limit (LCL) of £14250 and income from both private and state pensions.

As I understand it, he has to pay £1/week for every £250 above the LCL towards his social care costs.

Is he allowed to pay into his drawdown pension to reduce his capital (and the care costs), or would this count as deprivation of assets? (The additional income from drawdown pension would be nowhere near the 20.8% return assumed by the government rules).

NannaH

If he’s above State pension age,  the extra money he put in his pension will be counted as income,  whether he actually uses it as income or not. 

At their ‘rates’ too,  which are ridiculously high and don’t reflect reality. 

NedS

RudolphHucker said:

Hello,

My brother-in-law had a stroke and is now bed ridden and needs care at home.

He has capital above the lower capital limit (LCL) of £14250 and income from both private and state pensions.

As I understand it, he has to pay £1/week for every £250 above the LCL towards his social care costs.

Is he allowed to pay into his drawdown pension to reduce his capital (and the care costs), or would this count as deprivation of assets? (The additional income from drawdown pension would be nowhere near the 20.8% return assumed by the government rules).

Assuming he has no earned income, then the most he can pay into a pension per year is £2880 net (£3600 gross after tax relief is added). If income is treated more favourably than capital, then as you suggest, it may be more beneficial to convert some of his capital into an income paying asset. As he is limited to how much he can pay into his pension, he would have to split payments over multiple tax years (or get a job with earned income!)

An alternative may be to purchase an annuity, again converting capital into income.

The other side of the consideration, is that by converting capital into income, he must consider what he would do in an emergency without a decent capital buffer to fall back on?

Linton

Couple of points...

 - The government dont assume a 20.8% return.  It is assumed you will run down your assets until you reach the point at which the council will contribute.
 - money in a drawdown pension pot is assumed to be providing an income equivalent to an annuity once one reaches State Pension Age.  Before then it is not included in the assessment.

RudolphHucker

Thanks for the responses so far.

The social care payments are new to me, but so far, my understanding is:

1) If Capital is above £23250, then ALL social care costs have to be paid for.

2) If Capital is below £23250, then the care cost contribution is based on the residual income after an applicable amount is deducted to cover living costs.

3) If Capital is above £14250, then for every £250 above this £1/week is added to actual income (e.g. Capital of £15250 is taken as an additional income of £4/week).This is the 20.8% mentioned in my original post.

4) ALL the "residual income" is used to pay towards care costs up to the full cost, or a maximum value set by the council (£850/week for home care in my brother-in-law's case).

5) A pension fund is excluded from the Capital evaluation - my brother-in-law has a draw down pension.

Transfering £1000 from his bank account would reduce his "income" by £4/week, whereas the actual income received from the drawdown wouldn't go up by £4/week.

NedS

I hadn't considered the tax relief. If he transfers £2880 to a pension, his care cost would be reduced by £10/week, and his pension fund would get a £720 top up from tax relief.

Is it lawful to top up the pension from capital, or would that be seen as deprivation of assets?

xylophone

Is your brother-in-law under age 75?

This is important from the point of view of getting the tax relief.

And I doubt whether the scheme would permit contributions where tax relief was not available because the system is unlikely to be set up for this.

Is it lawful to top up the pension from capital, or would that be seen as deprivation of assets?

I can't see any problem with this. He is not depriving himself of assets - he is paying his money into his own pension scheme to benefit himself. In effect, he is converting one asset into another.

RudolphHucker

xylophone said:

Is your brother-in-law under age 75?

This is important from the point of view of getting the tax relief.

And I doubt whether the scheme would permit contributions where tax relief was not available because the system is unlikely to be set up for this.

Yes, he's 72.

Marcon

This sounds more like a benefit issue than a pension query. Perhaps https://www.turn2us.org.uk might be better placed to help you?

NedS

RudolphHucker said:

NedS

I hadn't considered the tax relief. If he transfers £2880 to a pension, his care cost would be reduced by £10/week, and his pension fund would get a £720 top up from tax relief.

Is it lawful to top up the pension from capital, or would that be seen as deprivation of assets?

Yes, it's lawful. He hasn't deprived himself of the asset - he still has it, just that now it sits in a pension wrapper rather than in a bank account. The council must still take it into consideration in line with the legislation - that means they must disregard it as capital (because it's in a pension ) but can assume a notional income from it if he is not taking an income from it in drawdown.

So he is simply converting capital to income.

Does he already have a DC pension in drawdown? Is this the pension he would pay into? Would he increase the income he is taking in line with the now higher value of the pot?

NannaH

Could he buy an immediate care needs annuity with his pension?  That would mean the money would not be taxable as it goes straight to the care provider.
Presumably he is being taxed on his drawdown pension ? 

woolly_wombat

Has your brother-in-law been assessed for entitlement to NHS Continuing Healthcare?