Backdated Occupational Pension

HillStreetBlues

Taylor2000 said:

HillStreetBlues said:

Taylor2000 said:

HillStreetBlues said:

Taylor2000 said:

@Newcad Thank you for your explanation, from what I've previously read and been told these backdated sums of pension payments (pension arrears) when taken under SPA would be treat as capital but going off the Rightsnet thread that doesn't seem to be the case?

This is where my confusion lies.

There might be confusion,  if a person takes a one lump sum then it's classed as capital, if it's regular payments it becomes income. In the Rightsnet  thread it's income as should have been paid weekly. Although it was paid as a lump sum, it would sill be classed as income.

Do you mean that a lump sum can only be classed as capital if it's not arrears? 

It depends on the arrears.
If you get a lump payment it's capital,  if later found the lump sum was incorrect an you should have a bigger lump sum, then the arrears is still capital.
If you get monthly payments, then it's income, if later found the monthly payments should have been more, then that arrears is still  income.

Sorry if I'm not getting it just want to double check. So you receive an initial arrears payment as a lump sum (made up of backdated monthly pension payments) this is capital? If that is the case how has the person mentioned in the Rightsnet post been overpaid for their backdated arrears, how has that been classed as income and not capital?

No, it's income as per "If you get monthly payments, then it's income, if later found the monthly payments should have been more, then that arrears is still  income."

Taylor2000

HillStreetBlues said:

Taylor2000 said:

HillStreetBlues said:

Taylor2000 said:

HillStreetBlues said:

Taylor2000 said:

@Newcad Thank you for your explanation, from what I've previously read and been told these backdated sums of pension payments (pension arrears) when taken under SPA would be treat as capital but going off the Rightsnet thread that doesn't seem to be the case?

This is where my confusion lies.

There might be confusion,  if a person takes a one lump sum then it's classed as capital, if it's regular payments it becomes income. In the Rightsnet  thread it's income as should have been paid weekly. Although it was paid as a lump sum, it would sill be classed as income.

Do you mean that a lump sum can only be classed as capital if it's not arrears? 

It depends on the arrears.
If you get a lump payment it's capital,  if later found the lump sum was incorrect an you should have a bigger lump sum, then the arrears is still capital.
If you get monthly payments, then it's income, if later found the monthly payments should have been more, then that arrears is still  income.

Sorry if I'm not getting it just want to double check. So you receive an initial arrears payment as a lump sum (made up of backdated monthly pension payments) this is capital? If that is the case how has the person mentioned in the Rightsnet post been overpaid for their backdated arrears, how has that been classed as income and not capital?

No, it's income as per "If you get monthly payments, then it's income, if later found the monthly payments should have been more, then that arrears is still  income."

So basically any deferred monthly pension payments that happen to get backdated in a lump sum will always be classed as income? Would this still apply once you've reached SPA and are no longer claiming income related benefits?

sheramber

Taylor2000 said:

HillStreetBlues said:

Taylor2000 said:

HillStreetBlues said:

Taylor2000 said:

HillStreetBlues said:

Taylor2000 said:

@Newcad Thank you for your explanation, from what I've previously read and been told these backdated sums of pension payments (pension arrears) when taken under SPA would be treat as capital but going off the Rightsnet thread that doesn't seem to be the case?

This is where my confusion lies.

There might be confusion,  if a person takes a one lump sum then it's classed as capital, if it's regular payments it becomes income. In the Rightsnet  thread it's income as should have been paid weekly. Although it was paid as a lump sum, it would sill be classed as income.

Do you mean that a lump sum can only be classed as capital if it's not arrears? 

It depends on the arrears.
If you get a lump payment it's capital,  if later found the lump sum was incorrect an you should have a bigger lump sum, then the arrears is still capital.
If you get monthly payments, then it's income, if later found the monthly payments should have been more, then that arrears is still  income.

Sorry if I'm not getting it just want to double check. So you receive an initial arrears payment as a lump sum (made up of backdated monthly pension payments) this is capital? If that is the case how has the person mentioned in the Rightsnet post been overpaid for their backdated arrears, how has that been classed as income and not capital?

No, it's income as per "If you get monthly payments, then it's income, if later found the monthly payments should have been more, then that arrears is still  income."

So basically any deferred monthly pension payments that happen to get backdated in a lump sum will always be classed as income? Would this still apply once you've reached SPA and are no longer claiming income related benefits?

Newcastle covered that scenario in his post.

Taylor2000

sheramber said:

Taylor2000 said:

HillStreetBlues said:

Taylor2000 said:

HillStreetBlues said:

Taylor2000 said:

HillStreetBlues said:

Taylor2000 said:

@Newcad Thank you for your explanation, from what I've previously read and been told these backdated sums of pension payments (pension arrears) when taken under SPA would be treat as capital but going off the Rightsnet thread that doesn't seem to be the case?

This is where my confusion lies.

There might be confusion,  if a person takes a one lump sum then it's classed as capital, if it's regular payments it becomes income. In the Rightsnet  thread it's income as should have been paid weekly. Although it was paid as a lump sum, it would sill be classed as income.

Do you mean that a lump sum can only be classed as capital if it's not arrears? 

It depends on the arrears.
If you get a lump payment it's capital,  if later found the lump sum was incorrect an you should have a bigger lump sum, then the arrears is still capital.
If you get monthly payments, then it's income, if later found the monthly payments should have been more, then that arrears is still  income.

Sorry if I'm not getting it just want to double check. So you receive an initial arrears payment as a lump sum (made up of backdated monthly pension payments) this is capital? If that is the case how has the person mentioned in the Rightsnet post been overpaid for their backdated arrears, how has that been classed as income and not capital?

No, it's income as per "If you get monthly payments, then it's income, if later found the monthly payments should have been more, then that arrears is still  income."

So basically any deferred monthly pension payments that happen to get backdated in a lump sum will always be classed as income? Would this still apply once you've reached SPA and are no longer claiming income related benefits?

Newcastle covered that scenario in his post.

Thank you for your comment. I am simply trying to gather as much knowledge as I can about this.

Newcad

To try and clarify (and without all those quoteboxes).

There are 2 different types of Lump Sum that you could take from a pension before State Pension Age.
(Actually I've thought of another one, so there's 3-types, see my post lower down).

The first type is a 'Pension Commencement Lump Sum' (PCLS) - that is a lump sum that you can, usually. take when a private/workplace pension reaches it's 'commencement' date.

Any PCLS thay you may take is classed as Capital for working age IR benefit purposes.

Note that taking a PCLS is not always possible with certain types of workplace pension, generally any 'Defined Benefit' pension (That may have been converted to a deffered pension annuity). Mine is one of the latter so no PCLS was/is available to me.

The second type is what that Rightsnet article was discussing - regular pension income that is taken as a lump sum.
Whether it's taken in advance or in arrears (backpayment) it's still income that was due regularly.

Regular pension payments, whenever taken, are classed as  Income for working age IR benefit purposes.

It's the Due-regularly or Taken-regularly that makes it income.

One other thing to clarify.

As already said if you defer the pension income until after State Pension Age then it does not affect working age IR benefits at all.
It's only if you take that income (in any form) before SPA that it affects IR benefits.

I believe that it is that way because the pensions were originally written to be due to commence at State Pension Age, so such a situation would not arise.

It's the government that changed that by changing the SPA, so they will allow you to defer your own pensions to your new SPA as well - without penalising you for doing that if you are claiming IR benefits.

However if you do choose to take income from your own pension before you have reached SPA then that will be taken into account for any IR benefits that you get - that's entirely your choice.

Newcad

Generally about pensions, not specifically about how they can affect benefits:

A PCLS's of up to 25% of your total pension entitlement from all non-state pensions you may have can be taken Tax-Free, if you take more than 25% then tax is payable on any above 25%.

Pension rules have got ***ing complicated over the years. (I know that it's done my head in looking it up and working my own permutations out as I approach SPA).

If you are not sure about your own pension(s) and how they work, or what you will be entitled to at commencement and beyond, then you should consider consulting a regulated Financial Advisor.
(However don't expect a Financial Advisor to be clued up on how pensions will affect benefits, some might but that's not really their job).

At the very minimum get a State Pension Forcast - because that asks about your private pensions and gives a rough idea of what payment you might expect from them.
I usually ignore the green 'Start Now' and use the BR19 form instead: https://www.gov.uk/check-state-pension

NedS

HillStreetBlues said:

Taylor2000 said:

HillStreetBlues said:

Taylor2000 said:

HillStreetBlues said:

Taylor2000 said:

@Newcad Thank you for your explanation, from what I've previously read and been told these backdated sums of pension payments (pension arrears) when taken under SPA would be treat as capital but going off the Rightsnet thread that doesn't seem to be the case?

This is where my confusion lies.

There might be confusion,  if a person takes a one lump sum then it's classed as capital, if it's regular payments it becomes income. In the Rightsnet  thread it's income as should have been paid weekly. Although it was paid as a lump sum, it would sill be classed as income.

Do you mean that a lump sum can only be classed as capital if it's not arrears? 

It depends on the arrears.
If you get a lump payment it's capital,  if later found the lump sum was incorrect an you should have a bigger lump sum, then the arrears is still capital.
If you get monthly payments, then it's income, if later found the monthly payments should have been more, then that arrears is still  income.

Sorry if I'm not getting it just want to double check. So you receive an initial arrears payment as a lump sum (made up of backdated monthly pension payments) this is capital? If that is the case how has the person mentioned in the Rightsnet post been overpaid for their backdated arrears, how has that been classed as income and not capital?

No, it's income as per "If you get monthly payments, then it's income, if later found the monthly payments should have been more, then that arrears is still  income."

For back dated arrears paid as a lump sum, I think it's a little more nuanced than that.

If the person chose not to receive the pension, for example the NPA was 60 but the rest of their pensions were not due until 66 so they chose not to retire at 60 and take that pension, then DWP should have treated that as notional income but often the claimant doesn't declare that they haven't taken their pension (why would they declare that they haven't done something!) so it often gets overlooked. If DWP later find out, then they can apply notional income backdated to the NPA of the pension, when it could have been taken. It has to be treated as notional income as the claimant never actually received it in the AP in which it is now being taken into account. The pensioner would receive any owed arrears as a lump sum, and this lump sum is treated as capital (not income) as it's already been treated an notional income when it was due but they did not claim it, so it cannot be treated as income again as that would be double counting.

HillStreetBlues

NedS said:

For back dated arrears paid as a lump sum, I think it's a little more nuanced than that.

If the person chose not to receive the pension, for example the NPA was 60 but the rest of their pensions were not due until 66 so they chose not to retire at 60 and take that pension, then DWP should have treated that as notional income but often the claimant doesn't declare that they haven't taken their pension (why would they declare that they haven't done something!) so it often gets overlooked. If DWP later find out, then they can apply notional income backdated to the NPA of the pension, when it could have been taken. It has to be treated as notional income as the claimant never actually received it in the AP in which it is now being taken into account. The pensioner would receive any owed arrears as a lump sum, and this lump sum is treated as capital (not income) as it's already been treated an notional income when it was due but they did not claim it, so it cannot be treated as income again as that would be double counting.

There are two issue, arrears, that is a payment a person should have got, that would mean they have claimed the pension and the amount calculated are the incorrect rate, AFAIK that should be income for when it should have been paid.

If a person chooses not to receive a private pension at 60, there is no notional income, only when a person reaches SPA (actually age for pension credit) can notional income apply.
https://www.legislation.gov.uk/uksi/2008/794/regulation/106

Notional income – deprivation and income on application

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—

(a)a discretionary trust;

(b)a trust derived from a payment made in consequence of a personal injury;

(c)an employment and support allowance;

(d)a jobseeker's allowance;

(e)working tax credit;

(f)child tax credit;

(g)a personal pension scheme, occupational pension scheme or a payment made by the Board of the Pension Protection Fund where the claimant [F1has not attained the qualifying age for state pension credit];

Taylor2000

@Newcad Thank you for your further clarification of this query.

If someone chooses to take takes the occupational pension at SPA and then receives a large backdated lump sum of pension payment arrears I understand you can have those payments attributed back to relevant tax years (so as not to face higher rate liability). However, if a person applied to do this would these backdated pension payments then somehow come back into play in regards to IRESA and be classed as income for the years they received this still resulting in an overpayment.

 I think this is the relevant link https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim75020.

Newcad

Taylor2000 said:

@Newcad Thank you for your further clarification of this query.

If someone chooses to take takes the occupational pension at SPA and then receives a large backdated lump sum of pension payment arrears I understand you can have those payments attributed back to relevant tax years (so as not to face higher rate liability). However, if a person applied to do this would these backdated pension payments then somehow come back into play in regards to IRESA and be classed as income for the years they received this still resulting in an overpayment.

 I think this is the relevant link https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim75020.

If you look at your link then the section about 'Pensions paid in arrears' starts: "If a pension provider discovers a long-standing underpayment of pension, ..." .

That isn't someone choosing to take a payment, it's an error being discovered.
Spreading the Tax liability back over the period where the error was ongoing is simply mitigating the possible Tax effects of correcting that error with a backpayment, so that the individual involved does not get unduly punished for that error.

If it happened before SPA then the lump sum backpayment would be counted as income for IR benefits, spread backwards the same as already discussed.

Edited after checking-
If discovered after SPA it could still be regarded as an overpayment of benefit from when the  error started until when the benefit ended on you reaching SPA.
A benefits overpayment can be recovered, including recovery from your State Pension. See the Benefit Overpayment Recovery Guide, Section 5.9 and Appendix 1.
(The question there being that as you would no longer be claiming IR benefits from the DWP, except possibly Pension Credit, then how would the DWP find out about it anyway?)

However the point is that this isn't something you could choose to do, it only applies in the case of an error.

PS. I've been thinking and realised that, as well as the above mentioned PCLS and Back payment of income, there is actually a third type of lump sum that you could take from a pension before you reach State pension Age.
You can also take 'Drawdown' amounts from some pension pots rather than taking a regular payment.
Whether those drawdowns would be regarded as being Capital or Income for IR benefit purposes would depend on how many and how often you take a drawdown amount. In other words a DWP Decision Maker would decide which they are in each case.