Pension advice/ guidance

[johnny778]

I know the first response will probably be seek independent advice from a suitably qualified FA, but bear with me.

My dad is 61 and doesn’t work due to ill health. My mother also doesn’t work due to ill health and as a result they live in a little housing association bungalow on a very basic income of government benefits such as Pip and universal credit.

A few years ago when my dad first had to finish work he took his tax free allowance from his pension and it was a god send as it gave them a bit of cushion now that neither of them was working. This was c. £12k if my memory serves me correctly.

My dad has around £30k left in his pension and wants to try and dip into this pot to help them get by. He’s a stubborn bugger who has very limited financial understanding and he is constantly asking me to help him get his pension “sorted”.

Now, as far as I can tell benefits such as universal credit are still classed as income as is any withdrawal from his pension pot.

The catch 22 situation that my dad finds himself in though is that if he draws cash out of his pension this will stop his universal credit as his income will go above the threshold. He then wouldn’t be able to claim universal credit until the cash was gone and the tax year reset. This basically makes the money he has in his pension pot worthless as despite paying tax on his withdrawal, he would then be penalised by losing his universal credit he gets. The money left in the pot won’t ever give him any kind of pension and so I’m at a loss at what to do.

There seems to be no way of getting at the cash without completely messing up their benefits. Is my understanding correct?

[Weirdfish]

could you not just draw down enough to keep him under the threshold of losing his benefits

[johnny778]

could you not just draw down enough to keep him under the threshold of losing his benefits

Unfortunately it doesn’t work that way, any draw down is treated as unearned income and will reduce universal credit payments. This leads to a loop that essentially means that any cash you take out your pension, firstly gets taxed and then they take away the universal credit also. In affect you get no more than you would have if you had just stayed on universal credit and didn’t make a withdrawal.

[Suds]

Savings/capital under £6,000 is disregarded, every £250 (or part thereof) reduces UC by I think £4.35 pcm. £16K nils entitlement until capital reduces below that level. Can he draw down £5,999 each year until state retirement age (66?) as Im unsure of current pension rules. There could be another option - what does he actually want the money for and does he currently have any capital/savings?
Also, savings from DLA/PIP used to be disregarded but unsure if that is the case - if it is then it might be worth having the PIP paid in to a different account so as to keep everything separate?