Universal Credit & Deprivation of capital?

Taylor2000

@ThriftyAberdeen

The link I posted confirms that any backdated pension taken before SPA will be classed as income for means tested benefits. 

"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."

ThriftyAberdeen

Thanks Taylor2000 - totally misread that! 

This presents a bit of a headache I guess, because I assume she'll need to hold on to that £6/7k back-date in her bank until they've calculated her benefit overpayments for last year or is it the case its counted as income for this year/that month? When does it move from being income to capital if its counted as income for that assessment period? To make it even more complex her UC claim is only fairly recent, she was on Income-related ESA and Child Tax Credit before. 

I think she is still keen on taking the pension now, if at the very least to clear her debt, and I guess because Housing Benefit / Council Tax reduction would be wiped out at SPA if we delayed anyway.

I really appreciate all your help so far folks. It seems like a bit of a minefield and I'm just trying to make sure she's in as best a financial position she can be in her later life, but without seen to be playing the system or not doing as she should.

Taylor2000

@ThriftyAberdeen It was @Newcad who kindly gave me the advice about how taking backdated/arrears of occupational pension before SPA affects means tested 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". This is certainly the case for ESA and I think the same rules apply to UC (see attached link from Rightsnet https://www.rightsnet.org.uk/forums/viewthread/21200/ but I could have misinterpreted that?
 I know the pension is classed as unearned income for UC and that is deducted £ for £ and I think arrears of pension would be assigned to the period they were paid for, rather than to the month they were received? 

I really am no expert regarding this and perhaps @Newcad or others could kindly offer their thoughts/advice on this.

Newcad

Like you quoted there I was only going from that Rightsnet thread.

Rightsnet is the forum for professional advisers and you will find some of the top people in the field there. (Some who regularly get invited to give evidence to Works and Pensions Select Committee enquiries for example).

When they debate a question on Rightsnet and come to a consensus then you can usually reckon it's the right one.

spaniel101

ThriftyAberdeen said:

kaMelo said:

Thanks for clarifying it is the 1995 scheme.

The reason I asked is your mention of backdated pension, as far as I'm aware, under the 1995 scheme anything that may have been payable between NRA and actually claiming the pension is lost, there is no backdated pension payment to cover those payments for that period. .

That's why the normal advice for anyone with a 1995 scheme membership is to claim it as soon as they reach their NRA of 55/60

Thanks - I didn't realise this as was contrary to what I was told when I called for her. Is this maybe different because she wasn't actively employed age 60 and had stopped paying in many years ago?

Yes, her situation is different.   Given that she is a Deferred member (non-active), she will receive backdated payments to NRA of 60.


https://faq.nhsbsa.nhs.uk/knowledgebase/article/KA-04594/en-us

Will my pension be backdated if I claim it after my Normal Pension Age (NPA)?

This depends on when you left NHS employment.

If you’ve not worked in the NHS since your NPA, your pension will be backdated to your NPA. You’ll receive a mandatory taxable back payment of your pension benefits. You cannot choose the date your back payment of benefits will be paid into your account.

If you’re an active member of the NHS Pension Scheme, your benefits will only become payable when you leave NHS employment. There is no backdating of pension to your NPA.

If you opted out of the 1995 or 2008 Section of the NHS Pension Scheme but continued to work in the NHS until after your NPA, your pension benefits from that Section of the Scheme can only be paid from when you leave NHS employment or if it's been 5 years since the date you last paid in. You’ll not be entitled to have your pension backdated unless you’ve opted out for a period of 5 years after your NPA.

kaMelo

spaniel101 said:

ThriftyAberdeen said:

kaMelo said:

Thanks for clarifying it is the 1995 scheme.

The reason I asked is your mention of backdated pension, as far as I'm aware, under the 1995 scheme anything that may have been payable between NRA and actually claiming the pension is lost, there is no backdated pension payment to cover those payments for that period. .

That's why the normal advice for anyone with a 1995 scheme membership is to claim it as soon as they reach their NRA of 55/60

Thanks - I didn't realise this as was contrary to what I was told when I called for her. Is this maybe different because she wasn't actively employed age 60 and had stopped paying in many years ago?

Yes, her situation is different.   Given that she is a Deferred member (non-active), she will receive backdated payments to NRA of 60.


https://faq.nhsbsa.nhs.uk/knowledgebase/article/KA-04594/en-us

Will my pension be backdated if I claim it after my Normal Pension Age (NPA)?

This depends on when you left NHS employment.

If you’ve not worked in the NHS since your NPA, your pension will be backdated to your NPA. You’ll receive a mandatory taxable back payment of your pension benefits. You cannot choose the date your back payment of benefits will be paid into your account.

If you’re an active member of the NHS Pension Scheme, your benefits will only become payable when you leave NHS employment. There is no backdating of pension to your NPA.

If you opted out of the 1995 or 2008 Section of the NHS Pension Scheme but continued to work in the NHS until after your NPA, your pension benefits from that Section of the Scheme can only be paid from when you leave NHS employment or if it's been 5 years since the date you last paid in. You’ll not be entitled to have your pension backdated unless you’ve opted out for a period of 5 years after your NPA.

Thank your for that information, I did try to find if there was a difference between active and deferred members but alas didn't come across the information you've provided.

Apologies to @ThriftyAberdeen for providing incorrect information earlier.

ThriftyAberdeen

Hi Everyone,

Thanks again for all your contributions and guidance. I think we've decided on our course of action. It's still just this headache about what happens with the backdated pension.

To our understanding she will receive a lump sum (she's adopted to take maximum commutation), and then a few days later she will receive her first pension payment. 

The lump sum (including the standard lump sum payment and commutation) will be used to pay off a number of items she feels is justifiable - she is moving house to a ground floor flat due to disability (in a house) so this will include new sofa, carpets, redecoration works. To keep this above board she will obtain an invoice for this along with the mutual exchange letter from the Local Authority housing team (she hasn't moved just yet). She is also going to clear off her debt including credit card, loan, catalogues, and a phone contract (device plan). The car we feel we can justify as a necessary spend as the daughter is the one who takes her on many appointments etc. 

The issue is that when the first pension payment comes in I gather this will include the back-dated pension which will be classed as "Income" and therefore reduce her UC entirely for that month. This is where my brain starts to hurt. I understand that this will mean she will essentially receive £0 UC for that month as her income is too high. But in the following month does that income convert to capital as it's now savings with her therefore getting her standard UC again (minus the pension equivalent which will offset?).

There are a few additional expenses she'd like to try and make with her lump sum, but I've cautioned her against this as I'm worried they're seen as deprivation of capital, these include a laptop for her daughter going to further education, a small holiday (£1200), and around £500 for new clothes. Being on UC has been a challenge for her and I think she sees the lump sum as a way for her to get herself on an even keel as she enters later life. Has anyone any experience on this? My real worry is that she ends up with no UC because of the deprivation suggestions that could follow.

Taylor2000

@ThriftyAberdeen said "when the first pension payment comes in I gather this will include the back-dated pension which will be classed as "Income" and therefore reduce her UC entirely for that month."

The backdated/arrears of pension will have more of an effect than you have stated and will cause recoverable overpayments of ESA and UC. Please see the reply I posted on 5/6/25 and @Newcad response to that. 

NedS

I understand @Taylor2000 and @Newcad's advice that backdated payments to NRA will be treated as income on the date it was due.

How does the pension scheme report those back payments to HMRC? Do they report one lump sum on the date the payment is made, or do they declare late reporting, and report back payments as income in each of the pay periods when payment would have been due, back to the NRA?

The claimant is likely to advise UC/ESA that they have received a pension lump sum and regular monthly pension payments, but without back reporting to HMRC, I'm wondering how either ESA or UC would gather the evidence to manually attribute those back payments and generate an overpayment. I'm betting in this scenario it simply gets missed, or do you have any evidence DWP are able to handle the back payments correctly attributing them to the pay periods in which they would have been received? Or worse still, as the claimant now has capital/income, they simply end their claim(s) and it never gets looked at. 

ThriftyAberdeen

Hi all,

Again thanks for all the advice, I’m just really anxious I do something wrong here and impact her financially. 

She is going to spend the commutation per the above in the hope that she can justify any expenses they ask her to, but I’m wondering if they’ll go so far as to ask what her lump sum was as opposed to what her level of capital is when she does her update? 

For the backdated pension, this is obviously going to be hard to deal with, I assume it might take them a while to calculate the correct backdating so whilst the money sits there for a month or two, does it transition to capital? Ideally she’d just like to pay the backdating straight to the UC / DWP so she doesn’t need to worry about that part eventually becoming capital not income and causing her UC to stop.