Another Deprivation Of Assets question!

Altior

I am currently on contributions based new style ESA.

Currently I am over £16K in capital savings, but I am forward planning for when my contributions based new style ESA terminates after 12 months. And considering if there are legitimate routes to reducing my capital (eg debt repayment, pensions).

Can I:

a) contribute to a private pension out of my ESA (unearned income) and cash interest income. 

and, or;

b) contribute to a private pension out of my existing savings, without it being treated as DOC ahead of a UC application. 

A note would be that I do have earned income from the beginning of the tax year, so would be eligible for private pension contributions where the tax can be reclaimed.

Thanks!

p00hsticks

Benefits and interest don't count as income for pension contributions so without any earnings you'd be limited to contributing £2880 a year (increased to £3600 with Tax Relief). 

Altior

p00hsticks said:

Benefits and interest don't count as income for pension contributions so without any earnings you'd be limited to contributing £2880 a year (increased to £3600 with Tax Relief). 

Thanks. Yes that's right, however I was working at the beginning of the tax year. I was contributing under SalSac, but only 5%. So I can contribute more and have tax reclaimed before the end of the current tax year. It's just a question of whether that would be problematic for a subsequent UC claim. 

Sam_666

ESA payments are taxable and last time I checked, any financial assets over £6k reduce ESA payments.

There is no such thing as "deprivation of assets" for ESA.
You either have or don't have assets.
Now, hiding of assets is different story.

Maybe if you are over 55y, you would be expected to start supporting yourself with pension income. 
But not 100% sure on that.

Altior

Sam_666 said:

ESA payments are taxable and last time I checked, any financial assets over £6k reduce ESA payments.

There is no such thing as "deprivation of assets" for ESA.
You either have or don't have assets.
Now, hiding of assets is different story.

Maybe if you are over 55y, you would be expected to start supporting yourself with pension income. 
But not 100% sure on that.

My New Style ESA is contributions based and not means tested. Unfortunately it is limited to a year. So in the process of considering the next steps. On another thread I was informed that if my ESA ends before I am on UC, I would have to go through a new UC claim from scratch. This is something that is unnecessary, and will look to avoid!

You're correct that I will be liable for income tax on my ESA payments.

It's not hiding of assets as such. Just a common sense approach. I could reduce the capital balance of my mortgage, but I'm on 2% for the next three years, so it would be more prudent to add to my pension with the tax clawback, in the year I have earnings to be able to do it. But I want to stay on the right side of the rules  

PS: I've not been put in a group yet, after 6 months of being on ESA. Apparently if I'm in one type of group my ESA can extend beyond the year. But who knows when I will find out, I've not received the assessment appointment as yet. 

Altior

After further research I feel like I should be able to at least put my ESA payments into a pension. Not a huge amount, as you'll know, around £92 pw. 

I believe it's up to me what I do with my benefits as far as legislation is concerned, so if I elect for pension contributions, that is valid. They aren't capital if I've just received them (so it will just be new receipts). I don't have an AP (I think it's called), but I suppose I could treat it as if I do.

If the above interpretation is correct (I'd like the experts to confirm), then I am still unclear on what would be perceived to be pre-existing capital, in regard to whether I can use that to top up my pension without it being considered DOC.

Grumpy_chap

The limit for contributions to pension is earned income.

Altior said:

After further research I feel like I should be able to at least put my ESA payments into a pension. 

Does ESA payments count as earned income?

NedS

From a tax perspective, as discussed above you can contribute what you earn each tax year, subject to some higher limits.

From a benefits perspective, what you are talking about is reducing your overall capital by making extra pension contributions for the purposes of claiming means-tested benefits, and that could certainly be viewed as deprivation of capital. I believe there is previous case law in this area where this has been ruled to be DoC.

Paying off debt is allowed and this should certainly be done, especially where the debt interest is higher than that you can earn on those savings.

Altior

NedS said:

From a tax perspective, as discussed above you can contribute what you earn each tax year, subject to some higher limits.

From a benefits perspective, what you are talking about is reducing your overall capital by making extra pension contributions for the purposes of claiming means-tested benefits, and that could certainly be viewed as deprivation of capital. I believe there is previous case law in this area where this has been ruled to be DoC.

Paying off debt is allowed and this should certainly be done, especially where the debt interest is higher than that you can earn on those savings.

Thanks!

The interesting element (if that's the correct adjective!) is that my overall capital is reducing whilst on benefits, over time, as my benefits and interest income are less than my day to day necessary expenditure. Definitely any pension contributions from my benefit income would effectively expedite the reduction overall, as I would need to use some additional capital on necessary living expenses.

I am qualified and it's a no brainer to contribute the maximum allowable over the tax year, as from my calculations I am due a tax rebate as well for 25/26, but would still get tax reclaimed on my contributions, up to gross annual earnings. That's regardless of whether I make a subsequent UC claim or not, but I can see how it could be interpreted as DoC if I utilise the financial opportunity. This is why I need to lean on benefits expertise. 

I have also read in my research that paying off debt is a red line, in the sense that it's never considered DoC, whatever the scenario, as long as it's your own personal debt. It's just the worst option for me, as all of my debt is 0% interest and the mortgage is 2% interest over the next three years. My mortgage lender offers 10% capital  overpayments annually without penalty, and their cut off is the calendar year. So I could effectively do close to 20% in the next week, but I have five days left to decide if I want to do the first 10%. My financial brain is telling me it would be absolutely daft to reduce debt at 2% when the capital is yielding 5%+, but I do need to consider the long term perspective!

itsthelittlethings

Altior said:

NedS said:

From a tax perspective, as discussed above you can contribute what you earn each tax year, subject to some higher limits.

From a benefits perspective, what you are talking about is reducing your overall capital by making extra pension contributions for the purposes of claiming means-tested benefits, and that could certainly be viewed as deprivation of capital. I believe there is previous case law in this area where this has been ruled to be DoC.

Paying off debt is allowed and this should certainly be done, especially where the debt interest is higher than that you can earn on those savings.

Thanks!

The interesting element (if that's the correct adjective!) is that my overall capital is reducing whilst on benefits, over time, as my benefits and interest income are less than my day to day necessary expenditure. Definitely any pension contributions from my benefit income would effectively expedite the reduction overall, as I would need to use some additional capital on necessary living expenses.

I am qualified and it's a no brainer to contribute the maximum allowable over the tax year, as from my calculations I am due a tax rebate as well for 25/26, but would still get tax reclaimed on my contributions, up to gross annual earnings. That's regardless of whether I make a subsequent UC claim or not, but I can see how it could be interpreted as DoC if I utilise the financial opportunity. This is why I need to lean on benefits expertise. 

I have also read in my research that paying off debt is a red line, in the sense that it's never considered DoC, whatever the scenario, as long as it's your own personal debt. It's just the worst option for me, as all of my debt is 0% interest and the mortgage is 2% interest over the next three years. My mortgage lender offers 10% capital  overpayments annually without penalty, and their cut off is the calendar year. So I could effectively do close to 20% in the next week, but I have five days left to decide if I want to do the first 10%. My financial brain is telling me it would be absolutely daft to reduce debt at 2% when the capital is yielding 5%+, but I do need to consider the long term perspective!

How much debt do you have? If it’s a significant amount you can’t rely on 0% forever, especially if your benefits income is appreciably less than your previous income and you’d probably be wise to start reducing it.

itsthelittlethings

Certainly better than gambling on contributions to a pension which could arguably be viewed as DoC. The amount you will be better off by just isn’t worth the risk.