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Thread: Taking private pension in a lump sum

  1. #1

    Taking private pension in a lump sum

    I am on contribution based ESA & have been offered the chance to have my private pension in a cash lump sum, which would help me clear some debts. Will taking this affect my benefits

  2. #2
    Thank you for your information. I will read through all the data and study it !!

  3. #3
    Senior Member Lighttouch's Avatar
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    That's interesting I have another private pension plan I plan to cash in being 56 and took early medical retirement two years ago and I'll be lucky to reach 60!

    It depends what type of pension you took out and that dictates how large a tax free lump sum you can take out.

    In my case Aviva told me I can have 18k tax free but it only leaves a few hundred a year pension that's index inked at 3%

    It's the sort of high earning risky pension that was frozen 20 years ago but retained all it's bonuses. If I died on Sunday in that road crash it would only pay out what I contributed and as no bonuses have been added or ever will be I might as well take it now.

    It won't affect my benefits as I'm not entitled to any other than DLA.

    I don't think paying off your debts is considered 'money laundering - just good money sense.

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    Quote Originally Posted by Lindyloo53 View Post
    I am on contribution based ESA & have been offered the chance to have my private pension in a cash lump sum, which would help me clear some debts. Will taking this affect my benefits
    As long as you are on Contribution Based ESA the lump sum won't affect your benefit (although if you are also getting any Housing/Council Tax Benefit it could affect that.)
    If by any chance your ESA conts based ends, and you need to claim Income Related ESA you would need to be able to show how the money had been used.
    However - using the lump sum - or part of it - to pay off debts should not be classed as depriving yourself of savings when considering claims for Income Based ESA, HB, or CTB, providing you can show that the debts were genuine. In other words bank loans, credit cards, outstanding bills etc.
    Repaying informal loans - for example cash from family - couldn't be legally proved.

  5. #5
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    Quote Originally Posted by Carneucopia View Post
    However - using the lump sum - or part of it - to pay off debts should not be classed as depriving yourself of savings when considering claims for Income Based ESA, HB, or CTB, providing you can show that the debts were genuine. In other words bank loans, credit cards, outstanding bills etc.
    .
    Was under the impression unless the creditor was demanding full loan repayment immediately due to default , then it could be classed as deprivation of capital to pay off more than the noramal monthly repayment. It seems such a vague area with no hard and fast written rules, with many things left to a decision maker's interpretation.

  6. #6
    Thank You for that. I did expect that it could affect my rent/council tax. What concerns me now is the income tax problem. I need to look into that, it seems they get you all ways ! I was just hoping to pay off a debt & have some sort of cushion for the future, but it may be that I am not allowed that. When I took out this pension I naturally thought I would still be working when I was 60.

  7. #7
    Senior Member Lighttouch's Avatar
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    Lindaloo Your lump sum will be tax free. If you receive a private pension they will not deduct NI and will only tax you on earnings over about £9300 approximately ad that will be at 20%. Remember DLA isn't taxable either.

    If you do get a lump sum try to invest it in a cash ISA even though interest rates are dismal as that is a tax free investment.

    Another tip - if you have a current account - look into changing to a new supplier as they are giving cash incentives - see Halifax / Santander.

    Hope this helps

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