Pension freedoms and means-tested benefits
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