Surprise Pension Pot

mum_of_joey · 16 May 2018 at 10:54AM

Hallo. I have found this week that when I opted out of SERPS 30 years ago, contributions were being paid into an Aviva pension, and there is now approximately £30,000 in the pot. I had no idea of any of this until I responded to a letter this week, as I had never paid anything to Aviva, so thought that they were just trying to sell me something!

This would be great news in normal circumstances. However - I have housing benefit and guaranteed pension credit, and, at the same time, I have been in an 'informal' debit management scheme with StepChange charity (ie NOT an IVA or bankruptcy, but an informal agreement with my creditors) since last September.

I know that if I took it all out to pay off my debts, I would get the first 25% tax free but would pay 'emergency tax' (ie 40%) on the remaining 75% (though I can reclaim 20% back ). So, if I took part of it out (ie the tax free 25%) and distributed this to my creditors as part payment towards my debts, would I lose my housing benefit (or part of it) or guaranteed pension credit, even if it went straight out again to my creditors? Or took the whole lot out to pay more and accepted the tax implications?

If I took an annuity on the whole £30,000 and being in not very good health, might end up with MORE each year than someone in good health, again, would I lose my housing benefit by the same amount? (I gather that, if I just took the cash out, instead of taking an annuity, the housing benefit people would work out how much I WOULD have got if I had taken an annuity - which would be more - and take THAT figure into account instead of the cash amount.)

If I wanted to leave something to my son, in order for him to pay for my funeral costs, AND had an annuity, would the money in the pot die with me, so that he can't get hold of any money? Or if I left some in the pension pot for him and died AFTER I was 75, would he, again, not be able to access the money?

I have to make a decision reasonably soon as I am now nearly 68 and the pension has to be taken out before I am 75.

I have booked an appointment with Pension Wise but they can't see me for more than a month and it is just churning over and over in my mind. I was offered 'paid' assistance by a financial advisor, but this amounted to 5% of the overall figure.

Thank you, if you are able to assist.

Dox · 16 May 2018 at 11:35AM

You have over six years to make a decision, so fretting because you can't see Pension Wise for a month is wasted emotional energy!

Pension Wise are very limited in what they can do in this sort of situation - they give guidance only on pension issues, not state benefits (ditto financial advisers). Try https://www.turn2us.org.uk who certainly will know about state benefits and probably several other aspects raised in your question.

zagfles · 16 May 2018 at 11:52AM

AIUI once you are over state pension age you have to use any pensions you have to support yourself, otherwise it'll be counted as "notional income" for the purposes of benefits eg pension credit, housing benefit.

See https://www.ageuk.org.uk/globalassets/age-uk/documents/factsheets/fs91_pension_freedom_and_benefits_fcs.pdf

Ask on the benefits board if further questions.

xylophone · 16 May 2018 at 2:52PM

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/417473/pension-flexibilities-dwp-benefits.pdf

If you (or your partner) are over the qualifying age for
Pension Credit

Once you (or your partner) reach the qualifying age for Pension Credit, you are expected to use your pension(s) to help support yourself. If you choose not to buy an annuity after reaching the qualifying age for Pension Credit, an amount of notional income will be taken into account
when your benefit is worked out. Notional income (in this case) is an amount equivalent to the income you would have received if you had bought an annuity.

You will need to advise DWP and your LA.

AnotherJoe · 16 May 2018 at 6:06PM

xylophone wrote: »

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/417473/pension-flexibilities-dwp-benefits.pdf

If you (or your partner) are over the qualifying age for
Pension Credit

Once you (or your partner) reach the qualifying age for Pension Credit, you are expected to use your pension(s) to help support yourself. If you choose not to buy an annuity after reaching the qualifying age for Pension Credit, an amount of notional income will be taken into account
when your benefit is worked out. Notional income (in this case) is an amount equivalent to the income you would have received if you had bought an annuity.

You will need to advise DWP and your LA.

That's not all bad deal then because they should be able to draw down perhaps 2x what an annuity would pay but only be counted as getting half what they take,

zagfles · 16 May 2018 at 6:33PM

AnotherJoe wrote: »

That's not all bad deal then because they should be able to draw down perhaps 2x what an annuity would pay but only be counted as getting half what they take,

You need to read the next paragraph:

If you take an income from your pension pot, the amount which will be taken into account when assessing your benefit will be the higher of the actual income or notional income. If you take a cash lump sum, this will be taken into account as capital

AnotherJoe · 16 May 2018 at 8:09PM

zagfles wrote: »

You need to read the next paragraph:

Bummer .....

Xbigman · 17 May 2018 at 4:08AM

But you can use the lump sum to pay off defaulted debts and it isn't deprivation of capital.

Darren

mum_of_joey · 18 May 2018 at 1:30AM

Thanks for the links - turn2us.org.uk won't answer individual questions, and my circumstances don't seem to be covered, not surprisingly. I do need to know now, really, as I could have taken this out years ago, had I known about it, and the situation with the Housing Benefit will only get worse, not better, if I leave it, I should think. Plus I will be worried sick until it's sorted out.

I gather that the first £10,000 of 'capital' is disregarded for purposes of Housing Benefit (though, being on Guaranteed Pension Credit, it seemed to imply that much higher capital than that can be disregarded).

The thing is that although the pension is supposed to support you when you retire, I didn't know that I had this pension when I retired at 61. It sounds stupid, I know, but even the letter that I received was from last December and would still be there now, unread, if I hadn't needed to clear things out this week and saw that it wasn't a 'sales' letter. After my initial euphoria, thinking that I would be debt free after months of sorting out my debts with StepChange, the implications of how it would affect my benefits suddenly hit me.

I will see if PensionWise can at least talk me through the 'not deprivation of capital' point that Xbigman mentioned if I pay debts off, and how much it is advisable to take out. I also wanted to buy a funeral plan so that I don't lumber my son with the cost (he is my only relative now).

Thanks all.

Simple_Man · 18 May 2018 at 5:11PM

Is it right that it can be used to pay off debt without being taken as Deprivation? I thought the conditions were quite tough on this.

DMG Chapter 29 says
"29833 Claimants or partners have no choice if they use their capital to pay
1. for the necessities of life, such as food and fuel or
2. debts which are
2.1 immediately repayable and 2.2 legal debts capable of enforcement 1 or
3. the Department to repay an overpayment. Claimants or partners who had no choice have not deprived themselves of capital to g et benefit or more benefit."

Further clarification in points 29834-29839 which I would read

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/689958/dmgch29.pdf

mum_of_joey · 19 May 2018 at 12:36AM

Thank you, Simple Man, for your reply. The reference you gave to me re. Capital was actually extremely useful in my particular circumstances and it's something that I can take to the pension advisor. Much obliged.

Surprise Pension Pot

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