Private pension access but not treated as income for benefit purposes
Paul_kt
Posts: 2 Newbie
Was wondering if UPFLS non crystallised capital access avoids deductions in income related benefits. In my case Income Related ESA due to illness. I realise normal capital rules of 16 k limit apply. Have a 40 k pension from better days and need a new car/kitchen. Wanted to withdraw 25% without having to treat remaining cash as income supplement.
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Comments
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If you use UFPLS you'll trigger the MPAA and be restricted to 4k of pension contributions a year from then on.
Taking just a tax free lump sum doesn't trigger the MPAA but does cause the remaining 75% to count as capital for means tests even if to avoid triggering the MPAA you don't touch it.
For benefits rules, money spent repairing or replacing dilapidated items is normally disregarded for capital (that is, you won't be treated as having deprived yourself of the capital) but you'll be expected to be able to document the need. Not normally so for car replacement unless needed for work, disability or say needing a reliable one to replace an unreliable one in areas with minimal public transport. Seek specific guidance first.
Unless the word need is truly accurate, like leaking pipes, mould, impossibly unhygienic rotted worktops truly applies your circumstances don't seem ideal for lots of capital spending.0 -
Thank you for prompt reply, need to do brush up on MPAA rules. Not expecting to make any further pension contributions due to long term I'll health. Looking like not feasible just now...was hoping to swing the car expense on the basis of going greener, unreliability etc. Could potentially buy new and take advantage of capital that way. Need to check with DWP on grace periods at all with capital release. Not sure either on Tax liability if cashing in fully, sub lower tax threshold currently. Thanks again.0
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"Taking just a tax free lump sum doesn't trigger the MPAA but does cause the remaining 75% to count as capital for means tests even if to avoid triggering the MPAA you don't touch it."
Is this true?
So if you have taken PCLS and are claiming tax credits, this would not affect your claim. But when you move to UC, then if your 75% remaining funds in your pension are over 16K, then you not be entitled to any benefits.0 -
There's some ambiguity in the wording:
"If you (or your partner) are under the qualifying age for Pension Credit
If you (or your partner) are under the qualifying age for Pension Credit, and you do not take any money from your pension pot, then it will not be taken into account when your benefit entitlement is worked out.
If you or your partner do take money from your pension pot, it will be treated as either income or capital, depending on, for example, how regularly you withdraw it."
That might be taken to mean that the 75% is also disregarded except for the after tax value.
Chapter 15 - Earnings for nonincome-related benefits
and
Memo DMG 12/15
However I think it's applied as I described earlier.
I don't know the tax credit rules.
If this will personally affect you, seek an official answer before acting.0 -
Thanks Jamesd for your reply.
Acting already done
and now I will read around the subject and your links for damage limitation.
I think it might be more appropriate that I start a new thread in due course and i'm sure others will be in a similar position.0
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