Universal credit and private pensions

jamsponge

Very new to UC

I have asked a question on my journal that they can’t give me a definitive answer to.

We have a mortgage and can pay the outstanding balance if we take a drawdown from a private pension.

Basically we will have to do this before they decide weather we will get sanctioned . 

Has anyone else done this?

What was the outcome?

If we don’t do this we can’t afford to pay our mortgage and will potentially lose our home and if we do do this and get sanctioned we will get £0 and have nothing to live on.

citizens advice don’t have the answer either

Famau

I believe that if you are drawing down and it is made clear that this is to service a debt then you should not be sanctioned...

Spoonie_Turtle

Sanctions area only for if you fail to do something, e.g. missing an appointment without good reason, or voluntarily giving up work without good reason, so wouldn't apply here.

[Also the reason UC won't give you an answer is they don't predict decisions for things that have not yet happened.]

I don't know much about drawdowns so please some of the other more knowledgeable members confirm or correct here, but I believe if it's a one-off drawdown it's viewed as capital (savings).  UC explicitly allows for savings to be used to pay off debt, which a mortgage is.

To ensure it doesn't affect your UC you would need to receive the money and pay off the mortgage within the same assessment period.  You can find your AP dates on your payment statement, it will say something like 'for Yth May - Xth June'.

If you don't manage to pay off the mortgage within the same AP as receiving the money, what will happen depends on how high your sabings are with the drawdown:
- If below £16,000, you'll have a proportional deduction from your UC for the APs which end with the higher amount of savings.
- If above £16,000, your UC claim will close and you would simply have to reclaim once the mortgage is paid off and your savings are below £16,000.


^ All the above is assuming yours is a simple UC claim rather than a managed migration.  If managed migration it'll depend on whether you already have capital above £16,000; if you do then it'll make no difference, if you don't then the above still applies but the UC claim closing would lose you any transitional element.

jamsponge

Spoonie_Turtle said:

Sanctions area only for if you fail to do something, e.g. missing an appointment without good reason, or voluntarily giving up work without good reason, so wouldn't apply here.

[Also the reason UC won't give you an answer is they don't predict decisions for things that have not yet happened.]

I don't know much about drawdowns so please some of the other more knowledgeable members confirm or correct here, but I believe if it's a one-off drawdown it's viewed as capital (savings).  UC explicitly allows for savings to be used to pay off debt, which a mortgage is.

To ensure it doesn't affect your UC you would need to receive the money and pay off the mortgage within the same assessment period.  You can find your AP dates on your payment statement, it will say something like 'for Yth May - Xth June'.

If you don't manage to pay off the mortgage within the same AP as receiving the money, what will happen depends on how high your sabings are with the drawdown:
- If below £16,000, you'll have a proportional deduction from your UC for the APs which end with the higher amount of savings.
- If above £16,000, your UC claim will close and you would simply have to reclaim once the mortgage is paid off and your savings are below £16,000.


^ All the above is assuming yours is a simple UC claim rather than a managed migration.  If managed migration it'll depend on whether you already have capital above £16,000; if you do then it'll make no difference, if you don't then the above still applies but the UC claim closing would lose you any transitional element.

Thankyou so much for the explanation. It’s all so new to us. 

NedS

Spoonie_Turtle said:

I don't know much about drawdowns so please some of the other more knowledgeable members confirm or correct here, but I believe if it's a one-off drawdown it's viewed as capital (savings).  UC explicitly allows for savings to be used to pay off debt, which a mortgage is.

That is correct. To be treated as income, a pension payment must be "paid regularly and by reference to a period". [UC Regs 46(3)]

For example, the person enters into drawdown and the pension drawdown documentation states will be paid £1000 on the 1st of each month.

Taking a one off lump sum is by definition not regular and by reference to a period, so it treated as capital.

As @Spoonie_Turtle states above, paying off debt is explicitly allowed on UC and therefore cannot be considered as deprivation of capital.

So as long as you take a one off lump sum, and then immediately use that to pay off mortgage debt (must be within the same AP), there is no issue.

frayedknot

Also be aware there may be tax to pay on your pension lump sum.