Civil Service Pension & Tax

Catonthemoon

In previous posts, I didn’t go into all the ins & outs of how I ended up in this predicament - it’s not quite as clear cut as some have been led to believe. 

“You deliberately chose not to return the forms so that you could continue to receive means tested benefits”. I stated that the forms just weren’t returned… that is very different. 

Some time after the IHR was approved, I decided to move. At the eleventh hour, the other party’s circumstances changed; consequently, I found myself without a home. I spent almost a year living out of a suitcase, staying in hotels , B & B’s & short term rentals… a very expensive way to live! Finding a new home was my priority- my pension was the last thing on my mind. I suspect a lot of my mail went astray during this period, which may have included pension related paperwork.

Eventually, I managed to secure a tenancy, but only by paying 6 months in advance. I’d run up circa £15k on my c/c while I was homeless & this latest cost left with me with virtually nothing. My ESA claim had already been up and running & as I no longer had any funds, had to apply for HB for my new home, which was awarded.

So, I could now sit down & try to sort out all of my affairs (mail, admin etc). Before even considering my pension situation, I was diagnosed with a serious illness. The following years consisted of several hospital visits, treatment etc. I couldn’t have cared less about my pension at that time.

Fast forward to 2025. I enquired on this forum about the tax implications with the pension. It was only brought to my attention (by Marcon I think), that due to having been in receipt of state benefits, “it could open a can of worms”. This was a real eye opener as I hadn’t even contemplated that what I was doing/not doing was ‘against the rules’. My intention was to claim the pension & once I’d received the funds I would end my HB & ESA claims.

Now that I will probably have to forfeit most, if not all, of my pension due to having been overpaid has made me very fearful as I was banking on having those funds to get me to SPA. I would dread to end up in the situation I was in 10 years ago.

As I’ve said, now that I know what’s what, I didn’t want to panic & rush into anything before doing some research.

xylophone

 Is this just habit or do you have concern about it? 

It seems to me a good idea for future planning for  people to obtain the forecast.

With regard to pension credits, we don't know the OP's situation.

She might like to check.

Marcon

Catonthemoon said:

Fast forward to 2025. I enquired on this forum about the tax implications with the pension. It was only brought to my attention (by Marcon I think), that due to having been in receipt of state benefits, “it could open a can of worms”. This was a real eye opener as I hadn’t even contemplated that what I was doing/not doing was ‘against the rules’. 

Doesn't exactly square with what you said in June:

Catonthemoon said:

I’ve been in receipt of ESA (IR), HB & CTB for the whole of the deferral period.



Regarding the above mentioned benefits, my intention was to end the claims when the pension funds are received, the thinking being that as they are no longer ‘live claims’, then that would be the end of the matter. In other words, by doing so, it would take away the DWP & the Local Authority’s right to pursue/attempt to recover any benefits deemed to have been overpaid.

Forget 'research' - you've had more than enough time for that. Talk to DWP/your local council as soon as possible to try and move things forward. It isn't good for you to be living with this sort of fear and uncertainty and won't be doing anything to improve your health problems.

xylophone

Some time after the IHR was approved, I decided to move.

 Then you were at the old address (and receiving benefits) for some time after the IHR was approved? You say that you had received 

forms for completion.

These were forms requiring your bank details and your choice on commutation of part of your annual pension?  As I understand it from 

preceding posts, you were  entitled to an automatic 3 x salary and the possibility of a higher lump sum via commutation?

 

I don't quite follow why you didn't return the forms at this time. Presumably the lump sum would have eased your situation? And after it was 

spent/down to £6000,  if the pension was modest, you may have been entitled to help with rent and CT? The DWP may ask the question.

 I suspect a lot of my mail went astray during this period, which may have included pension related paperwork.

It is possible that the post was returned unopened to the Administrator - I don't know what happens at that end in such a case.

Certainly there can be no payments until the forms have been received and actioned.

This was a real eye opener as I hadn’t even contemplated that what I was doing/not doing was ‘against the rules’.

You didn't consider that being told that you were entitled to an immediate unreduced/enhanced (?) pension was a change of circumstances?

As I understand it, you cannot choose to defer an ill health pension. You  simply chose not to receive it by not returning the forms.

I suppose you could claim the pension, asking the Administrator to clarify the amount of automatic lump sum and the amount of the 

balance that should be allocated to each tax year. It may be that  your pension income for each year was below the personal 

allowance? You say that the pension now is worth £12,000 per annum but presumably it was less ten years ago?  And what about the 

lump sum?

2013-2014	£9,440
2014-2015	£10,000
2015-2016	£10,600
2016-2017	£11,000
2017-2018	£11,500
2018-2019	£11,850
2019-2020	£12,500
2020-2021	£12,500
2021-2022	£12,570
2022-2023	£12,570
2023-2024	£12,570
2024-2025	£12,570

Once that has been sorted out you would need to look into the tax situation as previously discussed.   You would also need to clarify your situation with DWP.

Do check your State Pension Forecast.

Silvertabby

CatontheMoon - based on the figures you gave in your first post, you have so far waived payment  of more than £180K  (including notional cost of living increases) in favour of means tested benefits.  The actual cost to your pension scheme will be way more than this, due to the costs of paying your benefits (enhanced and unreduced for early payment).

But the figures that apply to you at the moment are your untaken 12+ years of CS pension benefits.  We on these boards cannot instruct or advise you what to do, and I very much doubt that anyone - despite our combined years of pensions experiences - can even point you to a precedent.  Because I just can't imagine that anyone else has gone through the rigours of applying for a public  sector ill health pension and then declined  payment.  

Please, for your own future sake, start the ball rolling by applying for your pension, and then stopping your means tested benefits.  Then take it from there.  

Marcon

xylophone said:

I suppose you could claim the pension, asking the Administrator to clarify the amount of automatic lump sum and the amount of the balance that should be allocated to each tax year. It may be that  your pension income for each year was below the personal allowance? You say that the pension now is worth £12,000 per annum but presumably it was less ten years ago?  And what about the lump sum?

2013-2014	£9,440
2014-2015	£10,000
2015-2016	£10,600
2016-2017	£11,000
2017-2018	£11,500
2018-2019	£11,850
2019-2020	£12,500
2020-2021	£12,500
2021-2022	£12,570
2022-2023	£12,570
2023-2024	£12,570
2024-2025	£12,570

OP - the above is a really useful post. The benefits you have said you received aren't taxable. Looking at the figures handily summarised by @xylophone your CS pension may have been below the personal allowance in each of the years shown, based on the earlier input from this wholly reliable and knowledgeable poster:

hugheskevi Posts: 4,661 Forumite   

2 June at 3:53PM  edited 2 June at 3:53PM

check with the CS scheme that they can do that - some of these public sector schemes have some curious quirks, and in your case it could be that the 'right' only arose when you actually asked for the pension to be paid.  I don't know, which is why I'm suggesting you check - although others with more familiarity with the scheme may be able to give positive confirmation either way.

It should operate in exactly the way you have set out from what has been described.

Note that although the pension may now be £12,000 p/a, that £12,000 will include annual increases from 2013. The arrears will just be the sum of what would have been paid without any interest, so will be somewhat lower than 12x12=£144K.

Catonthemoon said:

Now that I will probably have to forfeit most, if not all, of my pension due to having been overpaid has made me very fearful as I was banking on having those funds to get me to SPA. I would dread to end up in the situation I was in 10 years ago.

As I’ve said, now that I know what’s what, I didn’t want to panic & rush into anything before doing some research.

With respect, you still don't 'know what's what' - and are almost certainly frightening yourself far more than you need to.

You aren't going to 'forfeit' any of your pension. Your IHER pension (massively enhanced by the kindly taxpayer to cover the fact it is being paid 10 years before the scheme's normal retirement date, with no reduction for early payment, plus you were credited with some 'extra years' of service - it's an eye watering cost) will be backdated to the date from which it was granted. If split out to allocate the backdated payment to the relevant tax years, and based on the facts and figures above, I suspect there may actually be little or no tax to pay if you had no other income in those years.

The backdated pension, plus the hefty tax free lump sum, are going to go a very long way to repaying means tested benefits to which you were not entitled. I don't know what those benefits total, but you do - so a bit of basic arithmetic might give you a pleasant surprise, and some considerable relief.

Marcon

Just looked at some of your other posts, including this one of a few weeks back relating to the car you were considering buying: https://forums.moneysavingexpert.com/discussion/6639368/bank-details-for-deposit#latest

and especially your comment:

'..... decide how to finance the £6k (loan, own funds, cashing in investment which will take some time)'

Remember that you need to declare capital/savings - there is very clear and comprehensive information here: https://www.scope.org.uk/advice-and-support/how-savings-affect-means-tested-benefits

Note especially:

If your savings are:

• under £6,000, your benefit claim is not affected by your savings
• between £6,000 and £16,000, you lose some of your benefit payment
• more than £16,000, you are not eligible

Catonthemoon

@Silvertabby “your situation is so.....unique....no-one has any prior examples to draw on”

I suspect you’re right about that.

Catonthemoon

@xylophone  “OP, have you checked your State Pension forecast?”

Yes. 35 full years (ie max).

Silvertabby

Catonthemoon said:

@xylophone  “OP, have you checked your State Pension forecast?”

Yes. 35 full years (ie max).

35 years means nothing to you - that's only for those who started work after April 2016.  The rest of us are under transitional arrangements, each with our own very different calculations.  And the more contracted out service you had, the more likely you will need much more than 35 years to qualify for the full nSP.  In my own case, 48 years.

You really need to check your actual State pension forecast.