Hi all,

As this is probably quite an uncommon question, I don't know if anyone can help.

I currently receive ESA contribution based, in the support group. I also have two small pensions which total less than £85 per week so I have no deductions for them.

From next month (I will be 55!!!) I will be entitled to a further very small pension which would still keep me below £85 per week total, but I am considering just taking the whole lot as a lump sum (about £15K) to pay off the remaining mortgage. What I'm worried about is how DWP will view this - would it be considered capital and therefore irrelevant as I do not receive income based benefits, or am I likely to have to repeatedly prove I wouldn't have gone over the pension limit if I'd taken the annuity?

I am aware that taking the cash now is not likely to be the most tax-efficient or cost effective option.

Edit - I've found this fact sheet which I think says the money will be treated as capital, but I do read things wrong so would appreciate other opinions.

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

Link not working RMW

Andy

the lump sum is not income so that wont change anything. How they view the use of the capital ias another matter as the law doesnt make it easy to guess what they are thinking. If they decide you have deliberately deprived yourself of the capital they will treat it as still being in your grubby little hands and then make adjustments to your income based upon a 5% interest income on money you don have as well as reducing your benefits as the amount will be over the threshold.. You will have to prove that using the money in this way is allowable and unavoidable ( replacing knackered car with something else that isnt flash is OK, buying a new Bentley isnt).

As for taking the cash being tax efficient, it is as you dont pay tax on the money (at least 25% will be tax free under old and new pension rules and the rest wont get you over the tax threshold) You wont goover the threshold for the lifetime pension pot as this is about a million quid and depending on the scheme annuities dont come into it, that are for personal pension pots that you have set up and not part of a scheme. If it is a stand alone just leave the money where it is as long as the management charges are 1% or less, it will earn a bit of money for you and you can take it any time before you are 75. If the scheme allows take half of it near the end of this tax year and the rest in the next one to make best use of your personal allowance. you will also get past the DWP capital allowance limit. If the scheme doesnt allow this then move the money into one that does. You can do this without attracting the attention of anyone as long as you dont withdraw the money as cash and then reinvest, it must be a transfer.

Does this one work?

https://www.gov.uk/government/publications/pension-flexibilities-and-dwp-benefits

the lump sum is not income so that wont change anything. How they view the use of the capital ias another matter as the law doesnt make it easy to guess what they are thinking. If they decide you have deliberately deprived yourself of the capital they will treat it as still being in your grubby little hands and then make adjustments to your income based upon a 5% interest income on money you don have as well as reducing your benefits as the amount will be over the threshold.. You will have to prove that using the money in this way is allowable and unavoidable ( replacing knackered car with something else that isnt flash is OK, buying a new Bentley isnt).

Sorry, I don't understand this - where would any suggestion of 'deprivation of capital' come in if I don't receive income based benefits?

As for taking the cash being tax efficient, it is as you dont pay tax on the money (at least 25% will be tax free under old and new pension rules and the rest wont get you over the tax threshold) You wont goover the threshold for the lifetime pension pot as this is about a million quid and depending on the scheme annuities dont come into it, that are for personal pension pots that you have set up and not part of a scheme. If it is a stand alone just leave the money where it is as long as the management charges are 1% or less, it will earn a bit of money for you and you can take it any time before you are 75. If the scheme allows take half of it near the end of this tax year and the rest in the next one to make best use of your personal allowance. you will also get past the DWP capital allowance limit. If the scheme doesnt allow this then move the money into one that does. You can do this without attracting the attention of anyone as long as you dont withdraw the money as cash and then reinvest, it must be a transfer.

I already pay tax unfortunately, so it won't make any difference how many lumps I take the money in. Also, it turns out I would have to live a very long time to have been better off not taking the cash to pay off the mortgage now and taking the annuity now or at any time in the next 10 years based on what they were planning to pay me.

Does this one work?

 

https://www.gov.uk/government/publications/pension-flexibilities-and-dwp-benefits

I didnt say take an annuity, that is the last thing you should do. I said take the money as 2 lump sums in different tax years so you make best use of any residual tax allowances. If your income is above £11.4k then you dont need to do this as there will be no benefit. Capital earns a notional income of 5% so if you do cash it in use it quickly for the indicated purpose or they will assume that you are getting a return of £15pw from it.

Was this ever resolved? Could you not just have the pension forward increments over time to the bank to pay the mortgage over time? This way it is not a lump sum?

I took the lump sum, DWP weren't interested.

I took the lump sum, DWP weren't interested.

Nice job!