Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@.

Search
  • FIRST POST
    • melancholicynic
    • By melancholicynic 5th Feb 18, 5:06 PM
    • 63Posts
    • 2,760Thanks
    melancholicynic
    Advice on private pension & benefit needed please
    • #1
    • 5th Feb 18, 5:06 PM
    Advice on private pension & benefit needed please 5th Feb 18 at 5:06 PM
    Hi all, we are in need of some layman-terms jargon-free advice please!

    My husband is 55 years old and on long term incapacity (ESA support group) housing/council tax benefit and Disability. He will never work again. A pension tracing service found an old private pension of his from when he was working (29,000 including a 13,000 bonus which is NOT guaranteed), and he has been told he can claim it now at 55 if he wants to.

    There are a few options, but again we are a bit clueless:
    1. He can claim 25% of it as a tax free lump sum now (not sure what happens to the rest of it)
    2. He can claim it in monthly instalments
    3. He could do a 'Drawdown', whatever that means.

    What we are wanting to know is how these options might affect his benefit claim? Clearly we don't want to "upset the apple cart" where his benefits are concerned, but at the same time we would like to claim a lump sum off of this pension if possible. We want to make sure we do everything the right way, legitimately, so some advice is needed on which is the best step forward please. Many thanks in advance for any help!
    Last edited by melancholicynic; 05-02-2018 at 5:14 PM. Reason: n
Page 1
    • dunstonh
    • By dunstonh 5th Feb 18, 5:20 PM
    • 92,639 Posts
    • 59,953 Thanks
    dunstonh
    • #2
    • 5th Feb 18, 5:20 PM
    • #2
    • 5th Feb 18, 5:20 PM
    1. He can claim 25% of it as a tax free lump sum now (not sure what happens to the rest of it)
    If you leave the 75% invested it is called income drawdown. It will probably need a pension transfer to facilitate that as most old plans do not support drawdown.

    3. He could do a 'Drawdown', whatever that means.
    1 and 2 are also drawdown. Drawdown is effectively when you access the pension by any means other than an annuity or full withdrawal.

    What we are wanting to know is how these options might affect his benefit claim?
    The 25% has no impact. However, any access to the 75% chunk will be treated as income and an impact on means tested benefits. Large withdrawals could also be considered as a deprivation of assets and see a long term deduction in benefits reflecting that. They tend to use a notional rate of income for the amount of capital taken out.
    but at the same time we would like to claim a lump sum off of this pension if possible.
    Why? Pensions are meant for retirement. Spending the money at 55 whilst not retired effectively means you are robbing your retirement years to fund something in earlier life. Now there can be plenty of good reasons for doing this. However, many people just end up putting the 25% in the bank and have no need for some or all of it. That is completely pointless. So, do you have a purpose for it ?
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • melancholicynic
    • By melancholicynic 5th Feb 18, 5:45 PM
    • 63 Posts
    • 2,760 Thanks
    melancholicynic
    • #3
    • 5th Feb 18, 5:45 PM
    • #3
    • 5th Feb 18, 5:45 PM
    Thanks for the reply. Yes we do have a purpose for it, and as he will never work again and is in a poor state of health, he is effectively retired already.

    Can you clarify:

    The 25% has no impact. However, any access to the 75% chunk will be treated as income and an impact on means tested benefits.
    So, if he takes 25% of the 29,000 (7250) and transfers the 75% in a draw down, it wouldn't affect his benefit?

    Is it 25% of the whole pot that is tax free, or 25% of whatever sum you take? Eg. If he takes the 7250 would 25% of THAT be tax free and the rest taxed?

    Do you think taking 25% now is the best option so as to not affect his benefit claim and retain the 75% for later in life?
    Last edited by melancholicynic; 05-02-2018 at 6:11 PM. Reason: n
    • xylophone
    • By xylophone 5th Feb 18, 6:59 PM
    • 25,372 Posts
    • 14,968 Thanks
    xylophone
    • #4
    • 5th Feb 18, 6:59 PM
    • #4
    • 5th Feb 18, 6:59 PM
    https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/417473/pension-flexibilities-dwp-benefits.pdf

    http://www.justadviser.com/documents/means-tested-benefits-and-pension-flexibility-1312231.pdf

    Above may help.
    • kidmugsy
    • By kidmugsy 5th Feb 18, 7:13 PM
    • 10,560 Posts
    • 7,232 Thanks
    kidmugsy
    • #5
    • 5th Feb 18, 7:13 PM
    • #5
    • 5th Feb 18, 7:13 PM
    If he takes the 7250 would 25% of THAT be tax free and the rest taxed?
    Originally posted by melancholicynic
    No: he can take 25% of the whole amount and all that 25% (7250 at present) would be entirely tax-free.

    Keeping the rest invested within the pension for later in life sounds pretty sensible. When some of that money is eventually removed by him ("drawn down") it will be exposed to income tax for the tax year in question. However he will have a Personal Allowance against income tax so he may not have any tax to pay on it, depending on the amount. (Currently the Personal Allowance is 11,500 for tax year 17/18.)

    There's one other point that may as well be faced. What if he dies with some money still left in the pension? As long as he has completed the relevant form (sometimes called "expression of wishes") the pension pot can be transferred to your name.
    Last edited by kidmugsy; 05-02-2018 at 7:16 PM. Reason: add last para
    Free the dunston one next time too.
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

2,167Posts Today

7,336Users online

Martin's Twitter
  • It's the start of mini MSE's half term. In order to be the best daddy possible, Im stopping work and going off line? https://t.co/kwjvtd75YU

  • RT @shellsince1982: @MartinSLewis thanx to your email I have just saved myself £222 by taking a SIM only deal for £7.50 a month and keeping?

  • Today's Friday twitter poll: An important question, building on yesterday's important discussions: Which is the best bit of the pizza...

  • Follow Martin