Deferred CSP lump sum effect on ESA

Marcon

Newcad said:

@Ripley43

Hi,

A lump sum from a pension is counted for benefits as capital (savings) not income, and it is only counted from when the money is actually in your account.

So as I see it then it doesn't matter how it became deferred, that still applies

Will she actually have to take the lump sum or will/can it be deferred until state pension age?

It would seem odd if there is no option to defer the payment further. (But some occupational and private pensions do have strange rules).

I suggest reading again the letter she got, it may have been misunderstood.

The lump sum once taken will be regarded as capital for benefits purposes from the day that she receives it, but not until then.

There should be no question of Income Related benefits already paid being affected in any way. - Not least because it will be capital and not income.

It may  of course affect entitlement to IR benefits once it has been received as a lump sum.

Newcad said:

If I understand what you have said correctly then it can't be classed as income that she could have taken at the time - because she couldn't have taken at the time even if she had wanted to.

The CS calling it 'deferred pension income from age 60' is just a legal move to avoid other possible (probably tax) problems.

There are two sorts of lump sum at play here: a lump sum of backdated arrears, and the tax free lump sum which the Classic scheme offers. Classic members have the right to take their pension at 60. There is no late retirement factor in the Classic pension scheme, so it isn't 'just a legal move to avoid...' - it accurately describes the position. A member of Classic can defer until age 75, but in the absence of any uplift for postponing, it wouldn't normally make much sense to do so (the pension gets cost of living increases either way).

Having clarified that Ripley's mum most certainly could have taken her Classic pension at 60, is it possible that it is taken into account as 'notional' income in the same way that a deferred State Pension is? See 6.2 of https://www.ageuk.org.uk/globalassets/age-uk/documents/factsheets/fs19_state_pension_fcs.pdf  Benefits aren't an area I know much about, but it sounds as if you do, so that's very much a question, not a disagreement with what you've said.

Ripley43

@Newcad

She's not due to reach state pension age for another 3 years but she was wanting to take the CSP in the near future as she doesn't want to be on benefits anymore because it's making her more poorly with all the extra stress of reassessments/impending UC migration etc. 
The lump sum is made up of her backdated deferred pension payments will only be paid when she claims said pension and would receive it alongside her 1st monthly pension payment (this can be claimed at any point between 60-75) but payments are always backdated to the 60 birthday as part of the classic pension scheme there is no other option as this is mandatory.
She thought when she deferred the pension, that when she came to claim it that it would only be paid from that date and not backdated. So she went ahead with deferring as she knew it was none notional income and it was more beneficial for her to remain on benefits which was allowed due to this but now this backdated lump sum is confusing her as whether the DWP would somehow class it as her having received the pension all along.

kaMelo

The notional income rules regarding deferred private pensions only apply when someone reaches state pension age, even if, as it is here, the normal pension age of the scheme is earlier than SPA. Any state benefits claimed whilst the pension was in deferral will remain unaffected.

Going forward, any PCLS and lump sum payment for deferred pension benefits will be classed as capital from the day of receipt, ongoing payments after the lump sum payment will be classed as income.

How the capital and income affects future qualification for benefits is impossible to say without knowing the figures.

Ripley43

@kaMelo

Thanks for your reply
Could you just confirm what PCLS means?
Also when you say lump sum payment for deferred pension benefits, is this the same as what MyCSP are calling a taxable lump sum made up of arrears of my Mum's full annual pension amounts backdated from her 60th birthday as this is what she will receive with her 1st monthly payment, additionally a separate tax-free lump sum (that most pensions provide) will be paid around the same time.  

Dazed_and_C0nfused

PCLS is the defined benefit pension version of a TFLS (tax free lump sum).

The civil service Classic pension is a defined benefit pension.

The arrears lump sum will be taxable, the PCLS is not taxable.

Ripley43

Thanks for all the replies, is there anyone here who could point me to the relevant documentation to show that the deferred pension arrears taxable lump sum would only be classed as capital upon receipt and not end up being retrospectively classed as income from age 60 meaning then all the benefits she has received would be classed as an overpayment and therefore recoverable.

Newcad

Good to see that others understand these Civil Service pensions better that I do.

I agree with kaMelo that it depends on age.

As long as you are under 'Pension Credit Age' (State Pension Age) then the deferred pension payments will not be counted as income for benefits.
You say that your mother will not reach State Pension Age for another 3 years so her deferred pension payments were/are not counted as income, not even 'notional income'.

It is once you are above 'Pension Credit Age' that any deferred pension payments that could be taken but aren't are counted as 'notional income' and could affect IR benefits.

Any regular pension payments that are actually taken will be counted as income for benefits whatever your age.

Any pension lump sum once received will be capital and will affect IR benefits. Sufficient capital will end eligibility to IR benefits.

However from what you say then that is your mothers intention here, to get off the stress her benefits are causing her and live on pension and savings.

Scroll down here to: "Taking money from your pension pots could affect your benefits"
https://www.citizensadvice.org.uk/debt-and-money/pensions/nearing-retirement/what-you-can-do-with-your-pension-pot/

Just a by-the-way, It sounds as if your mothers decision is based on worries about the MIgration to UC?
MIgrating to UC is a faff but not particularly stressful, and in itself will not trigger any reassessments because the previously assessed ESA group just caries over into UC, and PIP does not migrate to UC anyway.
(Of course a reassment for either ESA or PIP may be due anyway).

kaMelo

Ripley43 said:

Thanks for all the replies, is there anyone here who could point me to the relevant documentation to show that the deferred pension arrears taxable lump sum would only be classed as capital upon receipt and not end up being retrospectively classed as income from age 60 meaning then all the benefits she has received would be classed as an overpayment and therefore recoverable.

There is nothing in the legislation to specifically say that but sometimes what legislation doesn't say is equally important. The legislation states that notional income from a pension is only calculated once someone reaches SPA, or more correctly state pension credit age. (The two ages are now aligned so it doesn't actually make a difference)  

ADM 5  
H5156 A person who has reached qualifying age for SPC, but who does not claim RP, has to be treated as possessing the amount of RP which they could be expected to receive1 , but only from the date it could be expected to be acquired if a claim was made. This will apply in joint claimant cases where one member has reached the qualifying age for SPC and the other member has not. 
https://assets.publishing.service.gov.uk/media/66867c21899a6f92e5d9ccf5/admh5.pdf

Although the last sentence in that paragraph raises an important question, is she living with/married to someone who is over state pension credit age?

Regarding whether amounts received should be treated as capital or income, to be determined as income there has to be a regular pattern to payments either in timing or amounts (events). The guidance I've read (but unfortunately can't lay my eyes on at the moment) suggests that an identifiable pattern of three events in a row is enough to determine payments as 'regular'   
the PCLS, (pension commencement lump sum, the defined benefit equivalent to a defined contribution tax free lump sum) is by definition a one off event and will be classed as capital. The payment of deferred pension benefits again will be a one off event and classed as capital. Ongoing pension payments from this point forwards will fit the regular pattern requirements as so will be classed as (unearned) income.

Marcon

What a really interesting and constructive thread this is - people with knowledge in different areas combining forces to try and help. I do hope OP's mum is now able to feel a lot happier!

Catonthemoon

@Ripley43 I’ve just come across this thread which is of real interest because my circs are similar. 

What, if anything, did your Mum do in the end?