Financial assessment rules that apply to the means tested Universal Credit benefit need urgent review if people are not to be required to drain their pension pots before being allowed benefits, as they could see 100 per cent of pension used to calculate financial circumstance.
Currently, those aged 60 or over with occupational or personal pension schemes have their potential pension incomes taken into account for the purposes of means tested benefits, regardless of whether or not they are actually taking an income from their pension.
The notional monthly pension income calculation is based on what could be achieved by annuitising the pension pot.
Specifically, current legislation states that “A person shall be treated as possessing income of which he has deprived himself for the purpose of securing entitlement to state pension credit or increasing the amount of that benefit.”
From next April 100 per cent of a pension fund will be immediately available as a lump sum, in the absence of clarification, financial advisory firm Portal Financial warns that under the new rules a person’s entire pension fund could be used as the basis for means testing, which could force people into exhausting their whole pension before any benefits will be provided.
Portal Financial managing director Jamie Smith-Thompson says: “As legislation stands, from April 2015 simply having a pension pot could risk it being viewed in its entirety as if it were money in the bank for the purpose of Universal Credit. This simply doesn’t seem fair and I can’t imagine this was the government’s intention. We are calling on HMRC to clarify and, if necessary, amend the rules to give intermediaries the proper framework in which to give the best advice”.
What the rules say currently
The Government’s Revenue Benefits illustrates the current approach in its legislation, which highlights the potential issue post April 2015:
“Holly is in receipt of UC. Her husband, Bernard, is 61. On 1 November the decision maker receives evidence that Bernard is entitled to a personal pension but has not bought an annuity or drawn an income. The pension fund holder states that Bernard’s scheme can provide an income. In Bernard’s case the maximum amount of income, based on the Government’s tables, is £23 a week.
Once an application is made it would take the pension fund holder six weeks to arrange for the maximum income to be paid.
“The DM decides that Bernard should be treated as having a notional income of £23 a week from the first day of the assessment period in which the personal pension starts.”
