Taking a Pension Lump sum at 55 while on Universal Credit & PIP

jasonwatkins

Since it's virtually impossible to get through to my local CAB to make an appointment, I'd like to see if anyone has any knowledge here.

I'm 55 in a few weeks and will become eligible to take lump sums from two pensions that I have.  One of them is around £12k after the various taxes and the other is £5.4k before taxes, so I suspect that one might only be around £2k-ish after taxes.

As far as Google is concerned, if I have £6k or below then my claim will be unaffected but anywhere between £6k and £16k and my universal credit claim will be reduced by £4.35 for every £250 over the £6k limit - so basically in this instance, if I took both amounts for around £14k, my Universal Credit claim would reduce by around £139 per month.

Does this sound about right ?

Would the pension companies have to inform the DWP or would I ?

And am I right in thinking there would be fairly strict restrictions on what the money could be used for as well if it's over the £6k limit ?.

Sorry for all the questions.  I was on hold early for an hour for a CAB advisor and no luck but I'll keep trying.  Cheers.

Dazed_and_C0nfused

I'm 55 in a few weeks and will become eligible to take lump sums from two pensions that I have. One of them is around £12k after the various taxes and the other is £5.4k before taxes, so I suspect that one might only be around £2k-ish after taxes

What are these "various taxes"?

Why do you think the tax will be so much on £5.4k?

Are you a higher rate taxpayer?

Brie

As I understand it you would need to inform DWP as soon as your savings are above the £6k mark. 

So given that your UC will then be reduced one must ask why you need this money now?  And so if you do have a vital need for some money are you able to take a smaller lump sum to keep you under the £6k mark?

AND what type of pensions are these?  If they are defined contribution of any sort there might be restrictions on how you take the money and how much is tax free.  I'm taking a pension in 2 payments over 2 years and the tax free is 25% of each payment so not all at once.

But if they are defined benefit scheme you would need to put them into payment normally to get a lump sum payment and that would have on going affect on your UC.

jasonwatkins

Thanks for the replies.  I hate multi-quoting

The larger pension is a defined contribution personal pension plan.  The actual amount of the pot is just shy of £17k but I would receive £12,827k which is made up of the tax free element and also a taxable element after emergency tax.

According to the paperwork I do have the option to take it in smaller lump sums over a number of years, a full lump sum or to leave it for my actual retirement from 2035.

My reasons for wanting the money now are entirely personal but all I'll say is that they are related to fairly devastating bereavement I suffered at the end of October last year.

Dazed_and_C0nfused

jasonwatkins said:

Thanks for the replies.  I hate multi-quoting

The larger pension is a defined contribution personal pension plan.  The actual amount of the pot is just shy of £17k but I would receive £12,827k which is made up of the tax free element and also a taxable element after emergency tax.

According to the paperwork I do have the option to take it in smaller lump sums over a number of years, a full lump sum or to leave it for my actual retirement from 2035.

My reasons for wanting the money now are entirely personal but all I'll say is that they are related to fairly devastating bereavement I suffered at the end of October last year.

Do you actually have any other taxable income in the current tax year?

SVaz

If your lump sums are going to be spent on necessary expenditure then they won’t be counted as savings.
It would probably be much better for you just to take the tax free cash element which would give you just over £6k.  

Then you could draw £1000 a year if needed, paying 20% tax if your other income is over your personal allowance. 

jasonwatkins

Dazed_and_C0nfused said:

jasonwatkins said:

Thanks for the replies.  I hate multi-quoting

The larger pension is a defined contribution personal pension plan.  The actual amount of the pot is just shy of £17k but I would receive £12,827k which is made up of the tax free element and also a taxable element after emergency tax.

According to the paperwork I do have the option to take it in smaller lump sums over a number of years, a full lump sum or to leave it for my actual retirement from 2035.

My reasons for wanting the money now are entirely personal but all I'll say is that they are related to fairly devastating bereavement I suffered at the end of October last year.

Do you actually have any other taxable income in the current tax year?

No, nothing.

SVaz said:

If your lump sums are going to be spent on necessary expenditure then they won’t be counted as savings.
It would probably be much better for you just to take the tax free cash element which would give you just over £6k.  

Then you could draw £1000 a year if needed, paying 20% tax if your other income is over your personal allowance. 

That’s something I hadn’t thought of, thank you.

Dazed_and_C0nfused

jasonwatkins said:

Dazed_and_C0nfused said:

jasonwatkins said:

Thanks for the replies.  I hate multi-quoting

The larger pension is a defined contribution personal pension plan.  The actual amount of the pot is just shy of £17k but I would receive £12,827k which is made up of the tax free element and also a taxable element after emergency tax.

According to the paperwork I do have the option to take it in smaller lump sums over a number of years, a full lump sum or to leave it for my actual retirement from 2035.

My reasons for wanting the money now are entirely personal but all I'll say is that they are related to fairly devastating bereavement I suffered at the end of October last year.

Do you actually have any other taxable income in the current tax year?

No, nothing.

SVaz said:

If your lump sums are going to be spent on necessary expenditure then they won’t be counted as savings.
It would probably be much better for you just to take the tax free cash element which would give you just over £6k.  

Then you could draw £1000 a year if needed, paying 20% tax if your other income is over your personal allowance. 

That’s something I hadn’t thought of, thank you.

In that case if you took all of the larger one you would eventually get nearly all the tax refunded by HMRC. 

Whether taking it all now in one go is a good idea is a different issue.

jasonwatkins

Dazed_and_C0nfused said:

jasonwatkins said:

Dazed_and_C0nfused said:

jasonwatkins said:

Thanks for the replies.  I hate multi-quoting

The larger pension is a defined contribution personal pension plan.  The actual amount of the pot is just shy of £17k but I would receive £12,827k which is made up of the tax free element and also a taxable element after emergency tax.

According to the paperwork I do have the option to take it in smaller lump sums over a number of years, a full lump sum or to leave it for my actual retirement from 2035.

My reasons for wanting the money now are entirely personal but all I'll say is that they are related to fairly devastating bereavement I suffered at the end of October last year.

Do you actually have any other taxable income in the current tax year?

No, nothing.

SVaz said:

If your lump sums are going to be spent on necessary expenditure then they won’t be counted as savings.
It would probably be much better for you just to take the tax free cash element which would give you just over £6k.  

Then you could draw £1000 a year if needed, paying 20% tax if your other income is over your personal allowance. 

That’s something I hadn’t thought of, thank you.

In that case if you took all of the larger one you would eventually get nearly all the tax refunded by HMRC. 

Whether taking it all now in one go is a good idea is a different issue.

In a different world, with my sensible head on, I’d have left it and probably looked at trying to reinvest it to try and grow it somehow.

FIREDreamer

What are you going to live on in retirement? Just the state pension?

SVaz

A small pension can be a huge financial millstone in certain circumstances.
It can put you a pound or two over the benefit limit and cost you hundreds of pounds a month. 

Although with PiP, it’s not a means tested benefit but other things like housing benefit can be out of reach for the sake of £1 a week in pension income,  even if, at SP age, you aren’t actually drawing anything.
People on this board tend to have the mindset that any pension is beneficial when the opposite can be true with renters on low incomes.