Tiny pension pot

I have a very small pension pot that is under £700 and I have the ability to take that money in one lump sum, which I could really do with. Income is JSA (for 2 of us). I have a very much larger pension pot which I plan to leave untouched.

If I take all of the pot will the DWP and Housing Benefit class it as income and knock our benefits down? If so, it means I can't take the money, no matter how meager the amount is. I'm aware that only 25% of it would be tax free, with the other 75% being added to our "income" for tax purposes. This is well below the annual allowance of £12,500 so no tax should be payable. We have no savings to speak of other than 4 weeks rent in advance and 1 month bills in advance. I've looked at pension advice sites but they don't really go into what happens when someone is on benefits and they take a very small amount from their pension pot.

Thanks in advance for any advice on this.

Absolut wrote:I have a very small pension pot that is under £700 and I have the ability to take that money in one lump sum, which I could really do with. Income is JSA (for 2 of us). I have a very much larger pension pot which I plan to leave untouched.

If I take all of the pot will the DWP and Housing Benefit class it as income and knock our benefits down? If so, it means I can't take the money, no matter how meager the amount is. I'm aware that only 25% of it would be tax free, with the other 75% being added to our "income" for tax purposes. This is well below the annual allowance of £12,500 so no tax should be payable. We have no savings to speak of other than 4 weeks rent in advance and 1 month bills in advance. I've looked at pension advice sites but they don't really go into what happens when someone is on benefits and they take a very small amount from their pension pot.

Thanks in advance for any advice on this.

If you (or your partner) are under the qualifying age for Pension Credit, and you do not take any money from your pension pot, then it will not be taken into account when your benefit entitlement is worked out.

If you or your partner do take money from your pension pot, it will be treated as either income or capital, depending on, for example, how regularly you withdraw it.

It is your responsibility to tell the Department for Work and Pensions (DWP) – and your local council where appropriate – if you or your partner take any money from your pension pot.

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

507415
If you're under Pension Credit age
Only the money you actually take out of your pension is counted as income or capital, not the full amount that you're entitled to take. The rules are the same otherwise. This means:
• money you take out of your pension will be considered as income or capital when working out your eligibility for benefits - the more you take the more it will affect your entitlement
• if you already get means tested benefits they could be reduced or stopped if you take a lump sum from your pension pot
• if you already get benefits, any money you take out and spend quickly could mean your entitlement gets reassessed
• if the benefit decision maker decides a your motivation for spending the money was to make sure it didn’t affect your means tested benefits, you could be seen to still have the money and have your benefits reduced or lose benefits
https://www.citizensadvice.org.uk/debt-and-money/pensions/nearing-retirement/what-you-can-do-with-your-pension-pot/

https://www.ageuk.org.uk/information-advice/money-legal/pensions/what-you-can-do-with-your-pension-pot/

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

What is Capital?

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/932375/dmgch29.pdf

What is income ?

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/932374/dmgch28.pdf

Thanks, bit if I only take 25% of it, it's literally £170. Am I really expected to declare £170 to the DWP when other people are allowed to have £5k in the bank and still claim full benefits?

I can't wade through 225 pages of DWP confusing rules.

If I can't take the money I will have to move it into my main pension pot if I can. Thanks anyway.

Useful caselaw

R v Passmore [2007] EWCA Crim 2053 – a change of circumstances which does not affect benefit entitlement/amount cannot be an offence under S111A(1A) Social Security Administration Act 1992 [presumably also under s112]. See also London Borough of Croydon v Shanahan [2010] EWCA Crim 98 (client had notified the council about her earnings which were high enough to extinguish entitlement to HB/CTB, but had not notified subsequent awards of tax credits.  The latter changes made no difference because entitlement was already removed by the earnings).

https://www.rightsnet.org.uk/forums/viewthread/866/#3110

Edit: Further info...

In R v Passmore [2007] EWCA Crim 2053, Passmore was convicted of offences under section 111A (1)A because he had dishonestly failed to inform the benefit authorities that he had formed a limited company. The court held that no offence was committed unless the failure to notify actually affected entitlement and, as he had not drawn any income from the company, there was no effect on benefit entitlement and the convictions were quashed. The court also held that the benefit fraud legislation must be seen in the 'wider statutory context' of social security law.

Practitioners never cease to be amazed by just how weak benefits authorities' assertions of non-entitlement or of amounts overpaid can be when subjected to knowledgeable analysis.

https://www.lawgazette.co.uk/law/benefit-of-the-doubt/4472.article

Civil penalty for 'failure to disclose' only applies if a recoverable overpayment has arisin.

https://www.turn2us.org.uk/Benefit-guides/Benefits-Overpayment/Civil-Penalties-for-benefit-overpayments

Absolut wrote:Thanks, bit if I only take 25% of it, it's literally £170. Am I really expected to declare £170 to the DWP when other people are allowed to have £5k in the bank and still claim full benefits?

I can't wade through 225 pages of DWP confusing rules.

If I can't take the money I will have to move it into my main pension pot if I can. Thanks anyway.

Further to my post above you won't suffer any penalties for not declaring, the saving/capital limit are very well known to most people.

Thanks. I won't withdraw anything until I'm sure where I stand. I can leave it where it is as I'm nowhere near the official retirement age yet.

Hi Absolut,

I have done this myself for a larger sum.Took 25% of fund.Pension fund management company in my case paid any tax due to HMRC.

Ask your pension fund company they should know exactly what the deal is for you.

jobberpw wrote:Hi Absolut,

I have done this myself for a larger sum.Took 25% of fund.Pension fund management company in my case paid any tax due to HMRC.

Ask your pension fund company they should know exactly what the deal is for you.

Hi, I did a search online and found the info I needed, but thanks for your post anyway. There is no effect on JSA if the amount is under the allowable savings limit. The amount I've claimed is well under 1k.

Anyone on UC should beware though, as the system is different and any money will be treated as 'income' with their UC adjusted accordingly.

Caker wrote:Anyone on UC should beware though, as the system is different and any money will be treated as 'income' with their UC adjusted accordingly.

https://www.express.co.uk/finance/personalfinance/1369359/universal-credit-uk-pension-age-scheme-withdrawals

"Savings above £16,000 make them ineligible to receive UC which is reduced once savings are in excess of £6,000. Every £250 of savings between these limits reduces the UC claim by £4.35 per month."

"Over 55s need to be aware that money in pension pots is not counted for the Universal Credit means test unless they are over state pension age ( 66), but if money is withdrawn then it will count towards the savings taken into account for the means test with each £250 of cash reducing the UC claim by £4.35 per week."

This is the same as for those on legacy benefits.

Caker wrote:Anyone on UC should beware though, as the system is different and any money will be treated as 'income' with their UC adjusted accordingly.

Taking money from a pension pot can be treated as income in particular circumstances (see above).

https://respectfulbenefits.forumotion.com/t4602-tiny-pension-pot#13251

Just to note if someone 55+ withdraws a pot of £5995 for example and their current account has previous balance of say £10 before a payment of UC is paid in, then need to declare it.Or best thing use that excess balance for food whether you need to or not.


Also, note that if someone has multiple accounts ,before pension pot is paid in, DWP combine all other sums in accounts.If they exceed a grand total of £6001 then hands up so to speak.

This is what i did but with different amounts. If in doubt might be best to phone tax office if you can actually get through to them.

I finally got the money on 7.1.21 after having applied for it in October.

25% of the amount was tax free, with 20% tax taken off the remaining amount leaving me with just over £606.

I now have P45 paperwork for the same day as if I've worked for one day, left, and then got paid for it weeks later with 25% tax free and the rest taxed at 20%.

I don't know what I'm supposed to do with this paperwork. We've been in receipt of JSA since 2013 and I haven't had any paid work and neither has my husband since 2018. That's not likely to change either in the pandemic. The DWP rules on what is classed as income OR savings is not clear and the P45 paperwork makes no sense to me when coupled to a JSA claim.

Any help appreciated.

Hi Absolut,

No worries.If you haven't worked for X amount of time fear not.

Contact tax office for full advice.You may even get a rebate. system is nuts!

If you have a P45 for one day i tale it was agency work you may well of paid too much tax as agencies ate recommended if for nothing else of not applying correct tax code.Keep hole of all that paperwork and contact HMRC whenever you feel like it.


Be sure to study how much cash you are allowed in any bank account.As if its 1p over any of their stupid highly generous allowances they will be  you for pay back.As a rule of thumb last time i looked: £16.000 + can have a detrimental effect on you if not disclosed.It may now be even ludicrously lower   .

Happy new year Jobber

Dont know what the hell is going on with my typing but i can spell... sometimes

jobberpw wrote:Hi Absolut,

No worries.If you haven't worked for X amount of time fear not.

Contact tax office for full advice.You may even get a rebate. system is nuts!

If you have a P45 for one day i tale it was agency work you may well of paid too much tax as agencies ate recommended if for nothing else of not applying correct tax code.Keep hole of all that paperwork and contact HMRC whenever you feel like it.


Be sure to study how much cash you are allowed in any bank account.As if its 1p over any of their stupid highly generous allowances they will be  you for pay back.As a rule of thumb last time i looked: £16.000 + can have a detrimental effect on you if not disclosed.It may now be even ludicrously lower   .

Happy new year Jobber

Thanks. It was the pension company that issued the P45 and a payslip via "activ payroll" so it does look like they used an agency. The "employer" name is Scottish Equitable Plc (Aegon) - i.e the pension company. The total amount we have in all bank accounts is 1/16th of the allowable amount so it's not as if I suddenly got rich   I simply don't know if I'm supposed to give the "employee leaving" part of the P45 to the DWP or not. I'm aware that I can claim the tax back directly with HMRC or leave it until April when they might or might not notice that I've paid too much tax and give me it back.

Happy new year to you too and to everyone else on here.

Please to read you have you money at long last Absolut.

You are not taking sums on a regular basis, so the mone received is capital and within allowed limits.

What is income
28002
Income is not defined in law1. It can normally be separated from capital because a payment of income
1. forms part of a series of payments, whether or not they are made regularly or
2. is made for a period of time or
3. satisfies both the conditions in 1. and 2.
Note: Where capital2 is being paid by instalments each payment will be capital unless DMG 28530 et seqapplies.1 JS Act 95; SS CB Act 92; 2 Lillystone v. Supplementary Benefits Commission (1982) FLR;Morrell v. Secretary of State for Work and Pensions [2003] EWCA Civ 526
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/932374/dmgch28.pdf

Happy New Year members!

Not looking forward to the new ideas coming out of No.10 in regards to potential draconian COVID measures coming our way.

WelfareChampion wrote:You are not taking sums on a regular basis, so the mone received is capital and within allowed limits.

Thanks, the quoted regs puts my mind at ease. Much appreciated.

WelfareChampion wrote:Not looking forward to the new ideas coming out of No.10 in regards to potential draconian COVID measures coming our way.

It's not looking good.

Hi, I'd appreciate a bit of advice, if possible.
I'm on high rate EESA and PIP for mental and physical health problems. I worked for seventeen years full time and during that time took out three small pensions. These were frozen when I had to give up work. Last year I reached 55 and as I desperately needed work done to make my garden more suitable for my needs I took out two pensions worth £14,000 together and spent the money on renovating my garden and also paying off debts and buying some much needed essentials such as bedding, and household goods. I made sure I had all of the receipts and my appointee sent them along with bank statements showing how much money I had had and what I spent it on last year.
This January my EESA was stopped completely without notice. My appointee contacted them and was told I hadn't given them enough info, and that my benefits would not be reinstated until I had. My appointee asked them why they hadn't notified me. They said they had sent out a letter three weeks ago, but covid19 had probably delayed it. My appointee received it three days later.

I obtained every bit of information I could get and sent it to them. They claimed they hadn't received it. I sent it again. They partially reinstated my benefits and told me I had to wait until they had 'decided' whether I would get the full amount.

This week my appointee contacted the manager who said my benefits were being reinstated - but in future if I took out my remaining pension I would have to spend all of it on what they considered 'essentials', and I was not allowed to keep a penny in savings or I'd once more lose my benefits.
This left me confused as I was led to believe you are allowed up to £6000 without it affecting your benefits and up to £16,000 before they were stopped entirely. When my appointee questioned this they told her I had already had the £6000 allowance. When she explained I had spent all of my pensions on vital stuff, and did not have any of it left, no savings at all, they said that it didn't matter as it was still considered 'savings' and therefore even though it had been spent I still could not have any 'extra' money in my bank at all.

I'm understandably upset but also confused. Could someone please give me a bit of advice on how they worked this out?

Yes, you are allowed up to £6k in savings but anything over that is classed as income and for each £1000 (or £500, I can't remember which) an amount is knocked off your benefits. You needed to declare all the money over £6k to the DWP and when you reduce the amount between 6k and 16k they want to know what you've spent it on. They see it as you liquidating the money so that your benefits aren't reduced. There is then a list of things you can spend the money on. If you are disabled and you spend it on a car, that's allowable, but I don't think renovating your garden is on that list. Sorry. I know it's your money but you can't have savings over 6k and be on benefits at the same time without it having an impact.

There is no reason for them to say that you can't keep a penny in savings under 6k, but no you can't keep a penny in savings over that amount and still get full benefits.

Possibly someone at Citizen's Advice can explain this better.

madcatwoman1 wrote:Hi, I'd appreciate a bit of advice, if possible.
I'm on high rate EESA and PIP for mental and physical health problems. I worked for seventeen years full time and during that time took out three small pensions. These were frozen when I had to give up work. Last year I reached 55 and as I desperately needed work done to make my garden more suitable for my needs I took out two pensions worth £14,000 together and spent the money on renovating my garden and also paying off debts and buying some much needed essentials such as bedding, and household goods. I made sure I had all of the receipts and my appointee sent them along with bank statements showing how much money I had had and what I spent it on last year.
This January my EESA was stopped completely without notice. My appointee contacted them and was told I hadn't given them enough info, and that my benefits would not be reinstated until I had. My appointee asked them why they hadn't notified me. They said they had sent out a letter three weeks ago, but covid19 had probably delayed it. My appointee received it three days later.

I obtained every bit of information I could get and sent it to them. They claimed they hadn't received it. I sent it again. They partially reinstated my benefits and told me I had to wait until they had 'decided' whether I would get the full amount.

This week my appointee contacted the manager who said my benefits were being reinstated - but in future if I took out my remaining pension I would have to spend all of it on what they considered 'essentials', and I was not allowed to keep a penny in savings or I'd once more lose my benefits.
This left me confused as I was led to believe you are allowed up to £6000 without it affecting your benefits and up to £16,000 before they were stopped entirely. When my appointee questioned this they told her I had already had the £6000 allowance. When she explained I had spent all of my pensions on vital stuff, and did not have any of it left, no savings at all, they said that it didn't matter as it was still considered 'savings' and therefore even though it had been spent I still could not have any 'extra' money in my bank at all.

I'm understandably upset but also confused. Could someone please give me a bit of advice on how they worked this out?

This guide is helpful.

https://medium.com/adviser/a-guide-to-deprivation-of-capital-income-3209a4b50720

I am pleased DWP has not taken further action.

If you need advice in the future these sites are useful:  

https://advicelocal.uk/

https://freelegalanswers.org.uk/Users/Account/UserAgreement

Thanks for the help, it seems that they see me as someone defrauding the system by deliberately spending everything so as not to lose my benefits - ironically despite the fact that I sent them notifications!
Guilty till proven innocent, I guess.

They can't accuse you of this unless they can prove it. Example 20k goes into your account. Within 24 hours you then withdraw £14.001 questions would be asked as to where the 14.001 went, actually spent on.

Something about disposing of an asset to make a monetary gain from the state.

If it was for a necessity. Ie, car, private medical expenses they probably accept that. But expensive holiday after receiving big payment won't look good.

You could take legal advice if you feel they are 100% wrong. I know I would. From your explanation catwoman1 I'd say you have a good case. They can't tell you on which items can be bought if was genuinely needed. If that is the case. Seek advice.

Thanks, I will.
Have to say...no expensive holiday. In fact, no holiday for 20 years!

Was just an example and can relate to holiday time elapse.