Pension and Benefits

McBuggy4

I was in receipt of Working tax credit but have been contacted by DWP as I cashed in an old pension which had been lying for years and was less than £6000 and I paid the tax on it.  As a result I have been told this counts as earnings and I need to pay back £5000 to DWP for overpayment.  Is this correct and if so why can you have up to £16000 in savings without benefits being affected?

Grumpelstiltskin

Hi You should post on this section.

Benefits & tax credits — MoneySavingExpert Forum

The benefit experts live on there.

sourcrates

Have asked for this to be moved.

sheramber

What benefit payments did you receive from DWP?

Newcad

What you say doesn't sound right, but more information is needed, some timings of what happened when would help.

I think that what you may be saying is that you cashed the pension while still on Tax Credits.

But that you are now on UC.

Is that correct?

If so then when did you cash the pension and when did you move to UC?

Also are your savings over £6k, or have they been at any time since you moved to UC?

(You should note that some pretty old overpayments/debts that HMRC didn't/couldn't chase can be chased by DWP under UC rules, and are).

Alice_Holt

It's correct that taxable income from pensions is also counted as income for the purposes of tax credits, See:
https://revenuebenefits.org.uk/tax-credits/guidance/how-do-tax-credits-work/what-is-income/pension-income/

I guess you took out more than the 25% tax free element (which would not have affected your WTC)?

From the link above:
"it is important that claimants who find themselves in the position where they are making decisions about whether and how to use their pension fund should not overlook the implications for their tax credit awards, benefits and overall household income.

The tax-free element of pension withdrawal is ignored as income for tax credit purposes but any amount over that limit should be declared as pension income in the usual way, as with interest on savings and investments. Both are classed as ‘other income’ and the total amount of ‘other income’ (which also includes foreign, property and notional income) which is over £300 is taken into account in assessing income for tax credit purposes.

Tax credit awards are assessed against income from the previous year as well as the current year and increases and decreases up to £2,500 are disregarded in the comparison between current year and previous year. So a modest taxable pension income in current year (within the £2,500 increase disregard) shouldn’t affect the tax credit award that year."

It is always a good idea to research the impact on your benefits / TC and your tax situation before accessing your pension(s) in advance of SPA, but sadly too late now.  Money helper / pension wise would have been a good place to start.
 

WTC are administered by HMRC, not the DWP.

Why have the DWP contacted you - what precisely did their letter say?


The £16k capital limit (set by parliament) relates to means tested DWP benefits not Tax Credits.

Are you now in receipt of UC?

peteuk

McBuggy4 said:

Is this correct and if so why can you have up to £16000 in savings without benefits being affected?

Under tax credit there was no limit for savings/capital.  Under UC and other income related benefits there is a limit on capital/savings.

The initial limit is £6K at which point UC is reduced by £3.45 per £250 or part of there in , over £6K.  If the capital is above £16 then the eligibility for UC stops. (Unless transitioning from TC where it is disregarded for 1 year) 

As noted above your Pension draw down would have been classed as earnings and so increased your income for the tax year it was drawn in.  Which would have affected your TC claim that year. 

sheramber

Alice_Holt said:

It's correct that taxable income from pensions is also counted as income for the purposes of tax credits, See:
https://revenuebenefits.org.uk/tax-credits/guidance/how-do-tax-credits-work/what-is-income/pension-income/

I guess you took out more than the 25% tax free element (which would not have affected your WTC)?

From the link above:
"it is important that claimants who find themselves in the position where they are making decisions about whether and how to use their pension fund should not overlook the implications for their tax credit awards, benefits and overall household income.

The tax-free element of pension withdrawal is ignored as income for tax credit purposes but any amount over that limit should be declared as pension income in the usual way, as with interest on savings and investments. Both are classed as ‘other income’ and the total amount of ‘other income’ (which also includes foreign, property and notional income) which is over £300 is taken into account in assessing income for tax credit purposes.

Tax credit awards are assessed against income from the previous year as well as the current year and increases and decreases up to £2,500 are disregarded in the comparison between current year and previous year. So a modest taxable pension income in current year (within the £2,500 increase disregard) shouldn’t affect the tax credit award that year."

It is always a good idea to research the impact on your benefits / TC and your tax situation before accessing your pension(s) in advance of SPA, but sadly too late now.  Money helper / pension wise would have been a good place to start.
 

WTC are administered by HMRC, not the DWP.

Why have the DWP contacted you - what precisely did their letter say?


The £16k capital limit (set by parliament) relates to means tested DWP benefits not Tax Credits.

Are you now in receipt of UC?

HMRC can pass outstanding debt to UC for collection if not paid.

frayedknot

Does this relate to the 23/24 tax year? 

sheramber

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