Pension freedoms and means-tested benefits

AndyRichardsAndyRichards Member
edited June 3 in Technical stuff

Hi All,

We have a case where a client wants to withdraw some money from their pension to pay for certain ad-hoc expenditure, however they currently receive benefits (housing & council tax). They do not want their benefits to be affected as a result.

What makes this difficult is, from my understanding, means-testing is done on a case by case basis. My worry is that they could fall foul of the deliberate deprivation rule, and/or increasing their income as a result of taking a PCLS and some taxable income.

(Quoted from HMRC) If you spend, transfer or give away any money that you take from your pension pot, DWP will consider whether you have deliberately deprived yourself of that money in order to secure (or increase) your entitlement to benefits.

If it’s decided that you have deliberately deprived yourself, you will be treated as still having that money and it will be taken into account as income or capital when your benefit entitlement is worked out.

I suppose my question is, considering that we are not specialists in State Benefits (as most IFAs are not!), to what extent should we include this within our recommendations? Or would you suggest that we use a light touch and recommend that they clear this/disclose the withdrawal with HMRC and/or a benefits offer before proceeding?

Thanks in advance :smile:

Comments

  • PPWowPPWow Member

    I would suggest the light-touch approach, you don't want to get sucked into the labyrinth of state benefits! You have done well to bring this to their attention though.

  • benjaminfabibenjaminfabi Moderator

    Andy,

    I've PM'd you the wording I used in a similar situation. More generally, my approach to this is:

    • What is the requirement for the capital? Is it something that needs to be spent? In my case, the clients were disabled (in receipt of ESA) and only had access to capital that they needed to widen doors by using PCLS via FAD.
    • Advise the clients to talk to CAB and the benefits agency responsible for their claim prior to the advice and hold the response on file.
    • Reference the response in the SR.
    • Hopefully it will give a good indication of what is likely to happen, which can then allow you to bolster the message/warning of the loss of benefits.
    • State that you aren't expert, and if you don't know what will happen then make it abundantly clear that there is a very real and present risk to the total loss of means tested benefits for a period following the receipt of funds.
    • Encourage full disclosure to the relevant agencies in the correct timescales to avoid penalties/repayments etc.
    Benjamin Fabi FPFS
    Chartered Financial Planner
  • @benjaminfabi said:
    Andy,

    I've PM'd you the wording I used in a similar situation. More generally, my approach to this is:

    • What is the requirement for the capital? Is it something that needs to be spent? In my case, the clients were disabled (in receipt of ESA) and only had access to capital that they needed to widen doors by using PCLS via FAD.
    • Advise the clients to talk to CAB and the benefits agency responsible for their claim prior to the advice and hold the response on file.
    • Reference the response in the SR.
    • Hopefully it will give a good indication of what is likely to happen, which can then allow you to bolster the message/warning of the loss of benefits.
    • State that you aren't expert, and if you don't know what will happen then make it abundantly clear that there is a very real and present risk to the total loss of means tested benefits for a period following the receipt of funds.
    • Encourage full disclosure to the relevant agencies in the correct timescales to avoid penalties/repayments etc.

    Cheers Ben, really appreciate it! That all makes sense.

  • NathanNathan Member

    Have a look at Entitledto.co.uk you could model what your client will have and see if it impacts the benefits.

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