Converting A Classic Civil Service Pension To A Different Type Of Pension

Ripley43

it's any lump sum that is taken from a pension pot.

@xylophone said:

A DB pension does not have a "pot".

The OP's scheme offers a PCLS (1) and monthly income (2).

In deferring the pension to which she was absolutely entitled at NRA (60 in this case), she deferred both.

If a person does this, when they come to claim, (2) is not a lump sum taken from a pension pot. It is arrears of income paid as a

lump sum.

Really not sure what you mean @xylophone by the two points you've made,
1. Are you saying that my Mum should have taken the pension at NRA (age 60) and she was not entitled to defer?

2. Does the fact it's deferred pension income/savings and not income from a pension pot really make a difference, after all the deferred payments are not making any difference to her ESA whilst they are being held by the pension provider?

Ripley43

@xylophone so you are saying the DWP's deferment rule doesn't apply to my mother or anybody who's occupational pension's NPA is before SPC age at all?
Because according to the legislation as I read it, is that you can defer pensions until SPC age as it's not classed as notional income?

xylophone

1. Are you saying that my Mum should have taken the pension at NRA (age 60) and she was not entitled to defer

I am saying neither of these things.

It is simply a fact that a DB pension  (unlike a DC pension) is not a "pot" of money.

At its most basic, a   DB pension is effectively a promise to pay an income for life from Normal Scheme Pension Age (or earlier, 

depending on scheme rules/legislation).

When a person comes to take his DB pension, he might be offered an automatic PCLS or he might be offered the opportunity to commute part of his pension to create a PCLS or he might be able to increase the PCLS by commuting part of the pension or to increase the monthly pension by reverse commuting the lump sum.

After that he must take the regular income which is usually increased in payment to account for inflation by whatever method is prescribed under scheme rules.

A DC pension is a pot of money built up from employer/employee contributions. There is a sum of money in the pension at the time the person chooses to access it.

The person  has a fair amount of choice as to how he takes his DC pension - once he reaches the minimum age prescribed in 

legislation, he could choose to withdraw the whole of the pension as a lump sum.

He could choose to take a series of lump sums.

He could choose to buy an annuity.

He could choose to draw a regular income.

When a person defers his DB pension, he is deferring the specific amount of income to which he is entitled under the rules and 

also (if offered under his particular scheme) the automatic PCLS.

With regard to your mother's pension, it is a case of interpreting the rules surrounding how means tested benefits interact with 

her right to a DB pension at age 60.

You have seen one interpretation offered in the link  here. 

https://www.reddit.com/r/BenefitsAdviceUK/comments/1fel43s/income_related_esa_and_deferred_occupational/?rdt=54502

And another interpretation in the link here

https://www.rightsnet.org.uk/forums/but/viewthread/20587/

I think that the way forward would be for your mother to seek a definitive ruling on her case by writing to DWP.

That would give her peace of mind?

Sarahspangles

I had a quick look at the Decision Makers’ guide, mostly out of curiosity having worked in different but similarly bureaucratic bits of the public sector. I feel a bit sorry for the DMs trying to navigate this.

There are lots of references to pension not needing to be taken into account until SPC age but then there is the example of Alastair (spelt that way) which I can’t copy, but you can search for. Alastair is 61, which would be below SPC age. He is able to take a pension but has chosen to defer. The DM is allowed to take into account the notional amount of income he would receive if he applied now, and reduce ESA.

I wonder what being ‘able to’ take a pension really means. They don’t seem to be suggesting anywhere in the document  that people use pension freedoms at 55 to mitigate their need for ESA. However there are older occupational pensions (I have one) which were designed to pay out at 60, maybe these are implied. Alistair’s example contradicts the paragraph above it which again refers to SPC age.

It doesn’t seem fair that DWP can effectively force people to retire before SPC by taking potential pension into account (assuming they do) and maybe this is discrimination. But if your mum would rather now retire than go through this Kafkaesque process any longer I can see where she’s coming from

My concern now would be that having contacted DWP a review may have been triggered for your mum. If the main concern is that lump sum arrears will cause DWP to also reopen previous years’ awards, I’d be looking for a way to present the decision to defer payment, so that any ‘looking back’ would be unreasonable. In fact Alastair’s example is useful, as the DM is only allowed to take account of the income from the date it could be paid, now it’s known to be an option, but not earlier.

Ripley43

@xylophone I know all this information about DB and DC pension schemes but this isn't about their rules it's about the DWP rules regarding backdated arrears being paid upon claiming the pension, as under the DWP's legislation you are allowed to defer up until SPC age, however, my Mum was worried that the DWP would somehow then class the arrears as income for a retrospective period for when she had been receiving ESA rather than a one off capital payment. So it was just this one simple thing that I was trying to find the answer to, how are the arrears going to be treat because the DWP operative seems to be thinking differently to everyone else.
It was mentioned about getting an answer from them in writing but my Mum was told they couldn't comment on what a decision maker will decide, so I was just trying to anticipate what the outcome would be.
The DWP operative couldn't even quote any legislation that covered this because they said there wasn't any specific legislation to cover this and it would bizarrely be the state pension credit rules that they would follow even though my Mum is not state pension credit age!!?

So because I couldn't get my Mum a definitive answer from anywhere and even though I've received some sound advice on here the DWP operative made her question the situation again and my Mum was still very worried because of this and that's why she was wondering if she could possibly convert her pension to a different type but we now know it's not possible, so again I took a chance and tried to find a definitive answer to the original question from my previous thread and I thank @Newcad for his explanation given earlier today.

xylophone

I know all this information about DB and DC pension schemes but this isn't about their rules it's about the DWP rules regarding backdated arrears being paid upon claiming the pension, 

It seems to me that it is about how one interconnects with the other - this must be the case otherwise this situation

It was mentioned about getting an answer from them in writing but my Mum was told they couldn't comment on what a decision maker will decide,

the DWP operative seems to be thinking differently to everyone else.

could not arise - the answer would be clear cut with no room for interpretation.

And not "everyone" else -  I refer again to the comment here

https://www.reddit.com/r/BenefitsAdviceUK/comments/1fel43s/income_related_esa_and_deferred_occupational/?rdt=54502

BUT

see also here

https://www.rightsnet.org.uk/forums/but/viewthread/20587/

With regard to "pension credit rules" see

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

You will notice however that the above refers specifically to Defined Contribution pensions.

The fact that there is uncertainty around the issue can only be because there are essential differences between DC and DB pensions.

For one thing, the DC does not confer the RIGHT to draw a specific amount of income at a specific age and at specific intervals.

The DB pension does offer such a right.

It is surely because of this that the DWP operative can even offer the comment on relating the pension arrears to specific periods?

I don't know the answer.

Sarah Spangles has looked at the DMG and seems to have found contradictions.

The only way to get a definitive answer is surely to put the matter in writing to DWP?

kassy64

Not going to be a popular view, but is it not morally correct for the DWP to attempt recovery, especially knowing that by deferring the pension beyond NPA would benefit significantly.

Newcad

Ripley43 said:

The DWP operative couldn't even quote any legislation that covered this because they said there wasn't any specific legislation to cover this .......

And that's the whole nub of our unceratinty here in these discussions.

Whilst there is some legislation covering deferred pensions and benefits, it doesn't cover all types of pensions.
(And you can tie yourself in knots trying to apply it to other pension situations that it wasn't written to apply to).

For the ones not directly covered by legislation the DWP are working to a 'Policy', so there is no specific legislation to point to and say 'it should work like this'.

PS. I am aware of that discussion on Rightsnet and wondered if it was this particular case, it's very similar if not.
In fact a lot of what I have said here is based on the conclusions drawn by the advisors there on Rightsnet.
When a bunch of the top professional advisors in the country (particularly Daphne and Paul) agree then it's fairly safe to say that they are almost certainly correct.

Being honest here I don't think that anyone can give a definitive answer, and that in the end it has to be a case of doing it and seeing what the DWP decision Maker decides.
Then if they try to treat it both as income as well as capital appeal that decision.
I can't find anything about a similar appeal - maybe/probably because it's never been treated as being income so never needed to be appealed.

Marcon

kassy64 said:

Not going to be a popular view, but is it not morally correct for the DWP to attempt recovery, especially knowing that by deferring the pension beyond NPA would benefit significantly.

Personally I favour clarity and the correct application of legislation over moral arguments. I think people are entitled to be treated fairly and consistently and know the consequences of particular actions before they take them. The huge areas of uncertainty which this thread has thrown up indicates that isn't the case. There will always be situations where such perfection on the part of the law makers is a lost cause, but there's nothing so unusual in the case of Ripley's mum that the position couldn't be set out clearly and unambiguously on one of the government websites - which suggests that maybe those authoring them don't actually understand what they're writing about.

kaMelo

I think firstly it's best to clarify things that are not in doubt. The tax free PCLS will be treated as capital and the ongoing pension payments will be treated as income. The backdated pension lump sum is what seems to be causing a problem. The relevant paragraph being 106 of the ESA regulations.
https://www.legislation.gov.uk/uksi/2008/794/part/10/chapter/6

106.—(1) A claimant is to be treated as possessing income of which the claimant has deprived himself or herself for the purpose of securing entitlement to an employment and support allowance or increasing the amount of that allowance, or for the purpose of securing entitlement to, or increasing the amount of, income support or a jobseeker's allowance.

(2) Except in the case of—

--snipped--

(g)a personal pension scheme, occupational pension scheme or a payment made by the Board of the Pension Protection Fund where the claimant [F10has not attained the qualifying age for state pension credit];

The OP has not attained state pension credit age so all unclaimed pension benefits are disregarded. The next paragraph is relevant if, like the OP wants to, draw on their pension prior to SPC age.

income which would become available to the claimant upon application being made but which has not been acquired by the claimant is to be treated as possessed by the claimant but only from the date on which it could be expected to be acquired were an application made.

I disagree with the interpretation of that paragraph that any deferred payment(s) if received prior to SPC age should be backdated to the normal pension age of the scheme, if that was the intent of the legislation then there would be no disregard in place beyond the normal pension age of such schemes. There are other reasons but I don't think they matter as it's fairly simple  The expectation of receiving a pension is created by the application, without an application there is no expectation therefore it cannot precede the application.