Backdated Occupational Pension

Taylor2000

Just revisiting this thread as I just want to get things clear in my mind. I understand that if you are below State Pension Age then you can defer a workplace pension that becomes due for commencement until you reach SPA without that deferral becoming Notional Income and so affecting Income Related benefits. However, is it still ok to do this if all those deferred payments will eventually be paid to you as a large lump sum of arrears when you reach SPA. Would previous Income Related benefits still not be affected as all the arrears would cover a period for when income related benefits were paid?

Taylor2000

Hello, can anyone give advice on my query of 14th May. Thanks.

huckster

UC considers income when actually received
 Does not look back at what period it relates to.

Newcad

I believe that I covered it back here: https://forums.moneysavingexpert.com/discussion/comment/81344381/#Comment_81344381

However the nub in the Rightsnet discussion is what happens if/when you do take the pension payments at any time before before you reach SPA.
The conclusion is that they are then actual income, and so they do affect Income Related benefits.
If taken before SPA as a lump sum backpayment  to the commencement date (as in the case being discussed) then they are regarded as being paid on the date that each individual payment was due, which results in an overpayment of the IR benefit from the deferred commencement date until the lump sum was taken.

If you leave the pension payments in deferral until you reach SPA then all is good,  no private pension income is  being taken while you are claiming IR benefits so IR benefits are not affected.
Your Working Age IR benefits end at SPA so what you do with the private/commercial pension after SPA can't affect them.

In other words it's only if you commence the pension before SPA that a lump sum could become 'backpayment of arrears'.
(Not all lump sums would though because there are PCLS's as well as possible backpayments, it depends on the pensions own rules).

If you start taking the pension when (or after) you reach SPA then any lump sum taken would be a 'Pension Commencement Lump Sum' (PCLS) and not 'arrears'.

Taylor2000

Thank you @Newcad for answering my query.

You said "If you start taking the pension when (or after) you reach SPA then any lump sum taken would be a 'Pension Commencement Lump Sum' (PCLS) and not 'arrears'. However, in this situation a tax free PCLS will also be paid when the pension will be taken upon reaching SPA. Therefore, will the taxable lump sum of arrears still be classed as a PCLS?

Newcad

I would think so and even if taxable it will still have no effect on IR benefits. Benefits that have ended when you reached SPA.

The Tax situation is not the same as Benefits.

Note that PCLS is only 25% Tax Exempt as a total of any lump sums taken, even when taken at different times from different pensions.

Private/workplace pensions have got very complicated with all the different schemes and rules set by different governments at different times.

(The current government are looking yet again to simplify them -- I suspect that it will be just another change to add to all the earlier ones and make them more complicated)

NedS

Newcad said:

I would think so and even if taxable it will still have no effect on IR benefits. Benefits that have ended when you reached SPA.

The Tax situation is not the same as Benefits.

Note that PCLS is only 25% Tax Exempt as a total of any lump sums taken, even when taken at different times from different pensions.

Private/workplace pensions have got very complicated with all the different schemes and rules set by different governments at different times.

(The current government are looking yet again to simplify them -- I suspect that it will be just another change to add to all the earlier ones and make them more complicated)

I think the phrasing of your answer is potentially a little misleading.

A PCLS is tax free. The size of the PCLS can be no larger than 25% (a quarter) of the entire pension pot, but the whole of the PCLS is tax free. For example, if you had a £100k pension pot, you could take £25k as a PCLS and the whole £25k would be tax free, and then draw down the other £75k as taxable income, all of which would be taxable (this is often referred to as flexi access draw down)

If there are pension arrears to pay, and the pension scheme pay these as a lump sum, then this would be taxable, assuming that a PCLS had already been taken using up the full tax free amount). If no tax free amount had previously been taken, then 25% of any payment would be tax free, and the rest taxable. It depends on the way the cash is taken.

Shadyocuk

Because you are below SPA I think the DWP can/will decide that you have received 12K for each of the last 12 years and will then look at what benefits you would have been entitled to had you actualy received the 12K per year, if that means you would have received less benefits then they will seek to claw back the total overpayment.

However my understanding is that if you wait until you are above SPA , then you could be OK. Whilst I believe you can request to have the pension treated by HMRC as though it was paid in each of the what would then be 17 previous years I am not sure how that plays with the DWP. 

Catonthemoon

Newcad said:

My understanding of the Rightsnet discussion is as follows:

They are generally saying that under current benefits rules it depends on when you take the pension payments that are in deferral.

If you are below State Pension Age then you can defer any private/occupational pension that becomes due for commencement until you reach SPA without that deferral becoming Notional Income (income that you could be taking but aren't) and so affecting Income Related benefits.
(I'm currently doing exactly that. I could have taken income from a workplace pension at 65, but if I had it would be deducted £ for £ from my UC. So I've left it deferred, and growing, until I reach 66 and SPA).

However the nub in the Rightsnet discussion is what happens if/when you do take the pension payments at any time before before you reach SPA.
The conclusion is that they are then actual income, and so they do affect Income Related benefits.
If taken before SPA as a lump sum backpayment  to the commencement date (as in the case being discussed) then they are regarded as being paid on the date that each individual payment was due, which results in an overpayment of the IR benefit from the deferred commencement date until the lump sum was taken.

If you leave the pension payments in deferral until you reach SPA then all is good,  no private pension income is  being taken while you are claiming IR benefits so IR benefits are not affected.
Your Working Age IR benefits end at SPA so what you do with the private/commercial pension after SPA can't affect them.

Notional Income (income that you could be taking but aren't) and where it does apply for deferred pension income:
If you leave the private/occupational pension payment in deferral after SPA then it will then be classed as being 'Notional Income' for Pension Age IR Benefits, ie Pension Credit and Housing Benefit, and can reduce PC/HB whether you take the private income or not.

Are you sure that’s correct? Would that not be contrary to the provisions of s.74 of the SSA Act 1992, quoted above!

Newcad

If you are just asking only about the bit you have bolded then, yes that is correct and many people are doing it right now without their benefits being affected.

If you are asking about the rest then:
That quote you give is just my interpretation of what the professional advisors on Rightsnet were debating, they are the legal professionals.

The issue they were debating was a pretty specific set of circumstances.

For reference here is that Rightsnet thread again: https://www.rightsnet.org.uk/forums/viewthread/21008

There is some discussion and confusion about different circumstances on this thread, which doesn't help understanding the issue.

eg. https://forums.moneysavingexpert.com/discussion/comment/81347130/#Comment_81347130