Paying debts using pension but will benefits be stopped

Annie2347

Hello,

I am looking for advice again please.

I receive contributory ESA in the support group with a little bit of income related ESA, Disability Living Allowance, housing benefit, and a small monthly occupational pension. 

From next year I can take my full occupational pension. I am £13000 in debt. 

I will be entitled to £17000 lump sum, 25% tax free and I will also receive a monthly pension of about £100 a month that will stop the income related ESA.

Would housing benefit and ESA allow me to take this amount to pay my credit cards without it affecting my benefits? If so, what is the best way to go about it?

I would be grateful for any advice and guidance. Thank you. 

Spoonie_Turtle

I don't know the answer for legacy benefits, sorry - but you do have a safety net in that repaying debt is absolutely fine under UC, so even if your legacy benefits would stop from doing the above you could still claim UC, particularly for help with the rent.

Annie2347

Thank you for your help again Spoonie_Turtle. _

tacpot12

I receive contributory ESA in the support group with a little bit of income related ESA, Disability Living Allowance, housing benefit, and a small monthly occupational pension. 

Contributory ESA isn't a means-tested benefit, so eligibility and calculation doesn't change whether or not you keep the lump sum. 

You have said that your income-based ESA will stop anyway as a result of the monthly pension benefit, so nothing to worry about there. 

DLA doesn't take capital into account, and neither does PIP, so your disability benefit won't be affected. 

Which just leaves HB. HB is less generous than Universal Credit (UC)  in respect of repaying debts (as stated by Spoonie_Turtle). Under HB you are regarded as deliberately having deprived yourself of capital if you use it to repay debts that are not immediately repayable IF your significant operative purpose in repaying the debts was to maintain your eligiblity for benefits.

I think you should repay the debts, and when you let the HB department at your local council know of your change of circumstances, tell them that your purpose in repaying the debts was to reduce your monthly outgoings as you were losing your income-based ESA income. The HB department needs to be told about your pension income anyway, and this may also stop or reduce your HB payment. They will consider the reason for you repaying the debts and will come to a decision about whether or not you have deliberately deprived yourself of the funds. If they decide you have, then you can start a claim for UC. 

There is an alternative approach, which 'games' the benefit system somewhat. If you claim UC before you start to receive your pension, you will benefit from the two week run-on of Housing Benefit. This is a peiod when for two weeks, HB pays your rent and UC also pays your rent. It's supposed to help claimaints who are forced to move from HB to UC, but in your case, it is a decision you could take to maximise the benefit of being able to take your pension. 

You haven't stated whether your pension will be reduced if you take it next year. If it is, this is because you are taking it before your normal retirement age, which will also be before your state retirement age. Therefore, you would also have the option of not taking the pension early and continuing to service your debts from your current income. This might produce a better financial outcome overall as your pension and lump sum amount would be higher. Only when you reach your Pension Credit age are you required/expect to take any pensions available to you. 

Annie2347

Thank you so much for your reply tacpot12 and advice. I’ll be 60 next year so not yet state pensionable age but eligible to take the occupational pension if I want. 

If I take the £17000 and pay off debt leaving me with £4000 then have to apply for Universal Credit, would I lose my migration protection for ESA? I know those who are being migrated over from ESA in support group to UC are not having to go through the WCA.

I will be asked to migrate from ESA to UC next year I think. Are you saying that if I take the £17000 to pay debts and I’m left with £5000 Universal Credit will allow this to happen?

Do I need to take my occupational pension by state pension age?

Thank you. 

KxMx

Your CB ESA will continue as it is not affected by finances.

This would mean migration protection remains so you'd automatically have LCWRA (SG equivalent) under UC. 

What would happen under UC is your ESA would swap automatically to New Style ESA, be paid separately at £276.40 per fortnight, and be deducted in full from UC award (£598.86 per month). 

Brie

Have you talked to a debt adviser to see if this is actually the best way to manage the debt?  I would suggest that and see also what they think about taking any lump sum from your pension or even taking it asap.  They might suggest that waiting a few years would be better.  

To get this all round advice you might need to talk to Citizens Advice so they can consider the impact on your income, benefits as well as the debts themselves.  StepChange, NationalDebtline, Community Money Advice are more likely to focus solely on the debt.

kaMelo

Annie2347 said:

Thank you so much for your reply tacpot12 and advice. I’ll be 60 next year so not yet state pensionable age but eligible to take the occupational pension if I want. 

If I take the £17000 and pay off debt leaving me with £4000 then have to apply for Universal Credit, would I lose my migration protection for ESA? I know those who are being migrated over from ESA in support group to UC are not having to go through the WCA.

I will be asked to migrate from ESA to UC next year I think. Are you saying that if I take the £17000 to pay debts and I’m left with £5000 Universal Credit will allow this to happen?

Do I need to take my occupational pension by state pension age?

Thank you. 

Assuming the pension scheme rules allow it then no, you don't need to apply for your occupational pension upon reaching SPC age,  but for income related benefit purposes, such as pension credit, you will be assessed as being in receipt of you pension benefits whether you've taken them or not.
Just a note on deferring your occupational pension, if deferring beyond the normal pension age what, if any, is the uplift in pension benefits for deferring?

If you are already on Universal Credit then yes, repayment of documented debt is never considered deprivation of capital. However the monthly pension benefit payment would be classed as unearned income and deducted in full from any UC amount you may qualify for.

Annie2347

Thank you for your help and advice. I will contact citizens advice first to ask for debt advice. 

RAS

Do also go over to the debt- free forum here as well. It would help to know what sort of debts (utilities, consumer credit, overdrafts) and when you took out the accounts?

Annie2347

Thank you for suggesting that RAS, I will do. It’s credit card debt I have that I’ve had since about 2021. A lot of it is made up of having to pay a private company to pick up our household waste. Neither my son or I can get out to the bins. I contacted the council and they just bounced my email to different departments.