Tax Free Pension Lump Sum

alffeh33

Hi,

I started a thread on Pensions, and some replys were it may be better on Benefits section for answers.

Essentially I want to know if taking a tax free lump from pension is treated as income or capital, and what if you take mutiple times tax free lump sums during the year - is it still counted as capital. Money taken will be used to pay off credit card debt immediately.

Original : https://forums.moneysavingexpert.com/discussion/6595113/paying-in-2880-into-sipp-question#latest

TIA

tacpot12

It's capital. Even taking it multiple times a year, it is still capital. It might be regarded as income if you instruct your pension provider to make the payments regularly. Don't ask for a regular payment. Ask for a one-off payment and it will be regarded as capital. Paying off debt is always allowed, so just make sure that you pay off the debt the moment the payment arrives in your bank account - don't risk it being in your bank account at the end of the assessment period.  

NedS

As @tacpot12 says, the key is whether the payments are taken regularly, and by reference to a period.

The law defines it in UC Regs 46(3):

any sums that are paid regularly and by reference to a period, for example a payment under an annuity, are to be treated as income even if they would, apart from this provision, be regarded as capital or as having a capital element.

I'm not sure how DWP would view taking lump sums monthly (regularly) to pay off credit card spending. By the letter of the law, if they are taken as pension lump sum payments then it's capital, but if the clear intent is to take pension lump sum payments regularly to fund regular credit card spending, then it looks more like income.

If this is what you are thinking of doing, I'd ask how confident you would feel in arguing Reg 46(3) in court if DWP takes a view that it's regular and therefore income?