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Thread: Occupational pension affect ir esa

  1. #1
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    Occupational pension affect ir esa

    Hi,
    I am hoping someone here may know the answer. Despite contacting pension wise I am non the wiser.
    I often look on this site, and nukecad seems very informative and helpful with his knowledge.
    I'm on ir esa and have been for sometime.
    I am 59, approaching 60. I have just received a letter stating I have an occupational pension payable from my 60th birthday. This is from a very old employer of decades ago.
    I have tried to figure out how this will effect my ir ESA.
    On research I have found out that the small weekly pension amount will be deducted pound for pound from my ESA.
    So, no better or worse off.

    The pension company have given me choices and I would chose the option to take my small weekly pension and get it deducted from my ESA however my question is:-
    Will the dwp consider that I should have/could have took a lump sum? and therefore knock me off ESA completely. This would mean I get knocked off ESA, live off the lump sum for 12/18 months, then have to apply to go back on uc.
    I read somewhere that 'if under pension credit age and the pension is untouched then it can't be classed as notional income' But once opened then it does become notional income.
    So would I be better off deferring and not touching/opening up my pension at age 60? Then I would be protected from notional income.
    I would like to do the right thing, by taking my pension weekly, and getting it deducted from my ESA,but really need advise as to if I do this, then could the untouched 'lump sum' be held against me (counted as notional income) and then get knocked off ESA?
    If that's the case, would I be best to leave it untouched?
    Apologies for my grammar, or repeating bits, but I struggle with the right words due to my neurological progressive condition.
    Many thanks in advance.
    Last edited by Bancroft; 17-11-20 at 18:18. Reason: Pressed wrong buttons due to tremor should be no question marks.sorry

  2. #2
    Senior Member nukecad's Avatar
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    Yes you have got all that correct, with a slight revision about 'Pension Credit Age'.

    But drawing it as regular income, or deferring it all, may not be the best thing to do - see below.

    If you draw down on your occupational pension as a regular payment then it is treated as income and so will be deducted £ for £ from IR benefits.

    If you take a lump sum then that will be treated as capital/savings.
    If the amount of lump sum you take out does not take your savings above £6,000 then it will not affect IR benefits.
    If it takes your savings above £6,000 it would affect your entitlement to IR benefits which would be reduced by £1 for every £250 (or part of £250) above £6,000,
    If it takes your savings to above £16,000 then IR benefits would stop altogether.

    However if you leave it where it is then it will not be treated as 'notional capital' and IR benefits will not be affected.

    The references you still see to 'Pension Credit Age' are outdated, as long as you don't draw it then it will not affect IR benefits.
    This is because of the changes to State Pension Ages, and thus Pension Credit Age becoming the same as SPA.
    As IR benefits end at SPA (except for UC, due to a few loopholes that can carry on after SPA in some circumstances) they have now changed the law to make the disregard 'Indefinite'.

    The Decision Makers Guidance for ESA Volume 9, Chapter 52: Capital.
    https://assets.publishing.service.go...78/dmgch52.pdf
    Under "Capital disregarded indefinitely 52359-52483"
    paragraph 52409 states:
    Occupational pensions
    The law

    52409 The value of the right to receive an occupational pension is disregarded indefinitely.
    The law in question is The ESA Regulations 2008 Schedule 9, "CAPITAL TO BE DISREGARDED", Paragraph 28.
    https://www.legislation.gov.uk/uksi/2008/794/schedule/9
    28. The value of the right to receive an occupational or personal pension.
    So your right to recieve monies from an occcupational pension is disregarded as Notional Capital, it's only if you draw down as a lump sum or regular payments that it affects IR benefits.

    Without knowing your circumstances or the offered pension options -
    If you can then you would probably be better off drawing a lump sum that doesn't take your savings above £6,000, using that to pay yourself a 'small weekly sum', and deferring the rest until State Pension Age.
    That way you could have a 'small weekly sum' (until it ran out) as well as your full IR benefits.

    As a simple example: Say you have no current savings and draw a lump sum of £5,750 from the occupational pension.
    £5,750 in savings would not affect IR benefits so you would still be paid the same ESA.
    Assuming you reach SPA at age 66 then you could use those savings to pay yourself £18.43 a week for the 6 years until you reach SPA. (Maybe a little bit more if you can get a good interest rate).
    As you would have the money in your account then it would be under your control and that small weekly payment needn't be fixed, you could take more or less than that as needed, always remembering that the more you take the shorter it will last.
    Plus you would still have the rest of the deferred pension to come when you do reach SPA.

    You've got me thinking; I also have a small occupational pension from years ago and need to check when that should start paying, I turned 60 earlier this year.

    EDIT - I realised that bancroft will reach SPA at 66 and not 68 (must have had a brainstorm that night); I've adjusted the money that could be taken weekly for 6 years from savings of £5,750.
    Last edited by nukecad; 22-11-20 at 22:49.
    I don't know everything. - But I'm good at searching for, and finding, stuff.

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  3. #3
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    Quote Originally Posted by nukecad View Post
    If the amount of lump sum you take out does not take your savings above £6,000 then it will not affect IR benefits.
    If it takes your savings above £6,000 it would affect your entitlement to IR benefits which would be reduced by £1 for every £250 (or part of £250) above £6,000,
    If it takes your savings to above £16,000 then IR benefits would stop altogether.
    Can I ask - how are Housing Benefit and Council Tax Reduction affected?
    presumably a similar calculation.

    For example, if the Rent 'payable' is £100 per week and the Local Allowance is £120, therefore with the full amount currently being covered; how would savings between £6,000 and £16,000 affect this situation?

    If the Council Tax payable is 25% of the 'full value', for example with the CT at £1,500 per year; therefore £375 being 'payable', again how would such savings affect this?


    Another point I've just thought of, I assume that notification to the DWP of a 'wind-fall' would be considered a Change in Circumstances; so does this trigger a move from ESA over onto UC?

    If this is the case, what happens to the remaining period of a current ESA claim? Does it stop, and a new assessment occur; or does that remaining duration carry-forward as-is?
    Last edited by adexico; 18-11-20 at 11:34.

  4. #4
    Senior Member nukecad's Avatar
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    HB wouldn't be affected, unless what you take wipes out your IR ESA entitlement altogether. (ie. if you take a lump sum that increases your savings to above £16,000).
    If you have any entitlement to IR ESA then that 'passports' you to full HB, at LHA rate for a private rental.
    https://www.entitledto.co.uk/help/Passported-benefits

    Council Tax is different depending on your council's rules, they all have different rules so you'd have to check with your own council.
    You should be OK if you take it as income which then gets deducted from ESA, or if you take a small lump sum - savings/capital limits for CTR may be different though again depending on the particular councils rules.

    It wouldn't mean making a claim for UC, it's just a change in your income for ESA.
    However if you took a lump sum that was enough to take your savings above £16,000 then ESA would stop, and once the savings reduced to below £16,000 again any new claim you made for IR benefit would then have to be for UC.

    PS. Nothing 'triggers' a migration to UC, - migration only happens if you claim UC yourself for something else, (eg. making a new claim for housing costs/rent), if you don't make a new claim for UC then everything else benefit wise stays as it is.
    I don't know everything. - But I'm good at searching for, and finding, stuff.

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    Many thanks for the informative response.

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    Nukecad, thank you so much.
    I replied a couple of hours ago, but my post did not come up.....?
    I am new and must have done something wrong. I was typing for ages my response, but it's disappeared.....

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    Oh. This one did, but I was typing for abouthalf hour my response and it all disappeared!! I will retype, but please bear with me as it'll take me a while again as I am so slow.

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    Nukecad thank you so much for taking the time to explain, it is very much appreciated.
    The lump sum amount would take me over the 16000 limit so for me that's not an option. As it will knock me off ESA.
    So looks like the best option is deferral.however my concern is if the notional rules change and I am unaware it will leave me with a large amount to pay back and that concerns me.
    So to be safe, I was thinking of taking the weekly option, although I'll be no better off, it maybe safer.
    What I would really like to know is :- if I take the weekly option and ESA deducts that amount, (so no better off) it will mean that I have accessed my pension under state pension age so will be treated as income I know, but my question is.....the lump sum that I DONT take, will that be considered as notional income? Capital? Because theoretically I have accessed my pension under state pension age so dwp will treat it as capital. Even though I didn't take the capital
    If that is the case, then I would be knocked off ESA if the untouched capital is counted. Therefore if that's the case it would be better for me to defer the pension completely.
    I think my decision is based on the answer tothis question. As I want to do the best thing for my circumstance.
    Thank you so much in advance, your help and knowledge is invaluable.

  9. #9
    Senior Member nukecad's Avatar
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    Quote Originally Posted by Bancroft View Post
    Nukecad, thank you so much.
    I replied a couple of hours ago, but my post did not come up.....?
    I am new and must have done something wrong. I was typing for ages my response, but it's disappeared.....
    You probably got logged out before you made that long post.
    It's a known glitch/bug with vBulletin forum software which this forum runs on. It's been known about for years but VB have never fixed it.

    What happens is that while you are writing something in the post editor then even if you are busy typing away the software sees you as inactive and so can log you out after a time.

    To avoid that in future then always tick the 'Remember me' button when logging in.
    I don't know everything. - But I'm good at searching for, and finding, stuff.

    Migration from ESA to Universal Credit- Click here for information.

  10. #10
    Senior Member nukecad's Avatar
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    my concern is if the notional rules change
    I don't see the deferred pension disregard law changing again, they have been the same for years and only changed this time because of the changes to state pension ages.

    PS. The same disregard covers both notional capital and notional income.

    The DWP were actually disregarding them as notionals for a number of years before the law was changed, they can sometimes see when something doesn't fit new circumstances and be practical about it.
    The change to the legislation just made it law rather than DWP policy.

    The fact that the legislators have now made the deferred occupantional pensions, and deferred private pensions, disregards 'indefinite' indicates that they did that so they won't have to change it again whatever happens.
    They could have just changed it to 'State Pension Age', but obviously the legislators were looking to cover much more than that with a simple, easier to understand, clause.

    Because of the wording of the legislation then taking part of an occupational or private pension now would not affect the status of any left deferred, only what is drawn out can be counted as either actual capital or actual income, and only when it is actually drawn out.

    To maximise the amount that you get from your occupational pension then deferring it all to SPA seems the best way to go. (As long as you expect to get to draw it, LOL).
    If you take some as income now then that will just reduce the payout at SPA for no immediate gain for yourself.
    It should also keep growing while it is deferred, depends on the terms of the scheme.

    I suppose it's a risk we all have to weigh up many times in life and occupational/private pensions just point it up - Do I want that now, or do I wait and get more in future if I last that long?
    In your case (or for anyone on IR benefits) then taking it now will make you no better off so you may as well risk leaving it for later.

    It is undoubtedly against the general 'spirit' of the benefits system not to take income/capital that you could be taking, and in most cases is not allowed hence the 'notionals'.
    But those with pots of money never hesitate to use tax and other loopholes where they can, (that's how they get to have pots of money), so why should we not do the same in the very few cases where we can?
    Last edited by nukecad; 18-11-20 at 20:54.
    I don't know everything. - But I'm good at searching for, and finding, stuff.

    Migration from ESA to Universal Credit- Click here for information.

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