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

jasonwatkins

SVaz said:

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. 

I do live on my own in a council flat but taking this pension when I retire will have little to no impact on my life with the amount per month it would be.

Shadyocuk

The reasons for asking why you need the money are two fold 

1) Depending on how much you actually need now there may be better ways to go about it

2) Depending on what it is needed for, if the DWP don't agree that it was allowable expenditure then they will calculate your capital as though you still have the money, worst case your claim for universal credit will stop , but it wont effect your PIP.

If you where to take everything in the same tax year 
  if the first pot is   £16915 then its likely that emergency tax of £4087 would be deducted giving you £12827
  the second pot of £5400 could have £600 (if with a different provider) or £1822 if with the same and taken at the same time 
  giving you £4688 or £3578 + £12827 (unless you have already taken the max tax free from the 2nd pot?)

£12827 + £4363 = £17626 your claim for universal credit stops (so not likely to be a good idea).
£12827 + £3578 = £16405 as above

if you had no other taxable income in that tax year than your actual tax due would be £1949 so at some point you would get a refund of
either £2739 or £3960

If you where to split taking the pensions over two or more tax years and you have no other taxable income then you could get the full amount with out being liable for tax, you would still pay emergency tax initially , but would get that refunded.

Given that you state you will not be 55 untill a few weeks time , its probably too tight to actually get any money this tax year ??

Without knowing how much you need or what for its hard to suggest your best option, but generaly speaking if you dont need all of it in one go 
then only take the minimium that you actualy need, for tax purposes only withdraw a max of £16760 in one tax year and for universal credit purposes keep your capital below £16K at all times as that way even if they dont accept the expenditure was necessary/allowable they cant close your claim.

To avoid paying emeregency tax you could take an inital payment of £1047 in one month , let HMRC generate a tax code and then take a further payment or payments.
I am not clear on how universal credit would treat this as taking a one off lump sum from a pension is counted as capital and taking regular 
sums is treated as income which would be deducted in full from that assesment periods payment (so no point unless much larger than a single months payment) , but where the cross over between the two lies is not clear to me at all!! Likewise I am not sure how universal credit deal with the tax refund?

If your actual capital was £14K then universal credit would deduct £14k-£6k = (£8k/250) = 32 x £4.35 = £139.20 a month (but even £1 more would mean an extra £4.35 a month deduction), but in order to have that much capital it would mean you have not spent it, so why withdraw it? 
or its spent but you cant convince the DWP that it was reasonable.

Whilst in general the best advice is if you dont need the money from a pension at a younger age then dont take it , Svaz makes a valid point
that as per the current rules , for some people (normaly renters who dont/wont have the full new pension) a small pension can be worse than no pension at all, but who knows what the rules will be in the future.

 

Shadyocuk

Sorry I meant to add that you dont need to actually post to specify how much or what for, as hopefully you can read my above post and come to your own conclusions.

jasonwatkins

Shadyocuk said:

The reasons for asking why you need the money are two fold 

1) Depending on how much you actually need now there may be better ways to go about it

2) Depending on what it is needed for, if the DWP don't agree that it was allowable expenditure then they will calculate your capital as though you still have the money, worst case your claim for universal credit will stop , but it wont effect your PIP.

If you where to take everything in the same tax year 
  if the first pot is   £16915 then its likely that emergency tax of £4087 would be deducted giving you £12827
  the second pot of £5400 could have £600 (if with a different provider) or £1822 if with the same and taken at the same time 
  giving you £4688 or £3578 + £12827 (unless you have already taken the max tax free from the 2nd pot?)

£12827 + £4363 = £17626 your claim for universal credit stops (so not likely to be a good idea).
£12827 + £3578 = £16405 as above

if you had no other taxable income in that tax year than your actual tax due would be £1949 so at some point you would get a refund of
either £2739 or £3960

If you where to split taking the pensions over two or more tax years and you have no other taxable income then you could get the full amount with out being liable for tax, you would still pay emergency tax initially , but would get that refunded.

Given that you state you will not be 55 untill a few weeks time , its probably too tight to actually get any money this tax year ??

Without knowing how much you need or what for its hard to suggest your best option, but generaly speaking if you dont need all of it in one go 
then only take the minimium that you actualy need, for tax purposes only withdraw a max of £16760 in one tax year and for universal credit purposes keep your capital below £16K at all times as that way even if they dont accept the expenditure was necessary/allowable they cant close your claim.

To avoid paying emeregency tax you could take an inital payment of £1047 in one month , let HMRC generate a tax code and then take a further payment or payments.
I am not clear on how universal credit would treat this as taking a one off lump sum from a pension is counted as capital and taking regular 
sums is treated as income which would be deducted in full from that assesment periods payment (so no point unless much larger than a single months payment) , but where the cross over between the two lies is not clear to me at all!! Likewise I am not sure how universal credit deal with the tax refund?

If your actual capital was £14K then universal credit would deduct £14k-£6k = (£8k/250) = 32 x £4.35 = £139.20 a month (but even £1 more would mean an extra £4.35 a month deduction), but in order to have that much capital it would mean you have not spent it, so why withdraw it? 
or its spent but you cant convince the DWP that it was reasonable.

Whilst in general the best advice is if you dont need the money from a pension at a younger age then dont take it , Svaz makes a valid point
that as per the current rules , for some people (normaly renters who dont/wont have the full new pension) a small pension can be worse than no pension at all, but who knows what the rules will be in the future.

 

Thankyou very much for taking the time to write that, it's very helpful.   I must confess that I'm swerving towards the option of taking lower sums over a few years just to be absolutely safe with my UC claim as I really cant afford to lose that under any circumstances.

GunJack

Posted in error