DWP sets out deliberate deprivation rules

People spending pension under the new freedoms will be treated as though they still have it for the purposes of calculating means-tested benefits, the government has confirmed.

Issuing guidance on the interaction of pension freedom and means-tested benefits today, the Department for Work and Pensions has confirmed single or multiple withdrawals from pension will impact Employment and Support Allowance, Housing Benefit, Income Support, Jobseeker’s Allowance, Pension Credit and Universal Credit.

People under the qualifying age for Pension Credit will be treated as having either income or capital, depending on the regularity with which withdrawals are made.

People over the qualifying age for Pension Credit who do not choose to buy an annuity will be deemed to have a ‘notional income’ equivalent to the income they would have received if they had bought an annuity.

Where individuals spend, transfer or give away any money from their pension pot, the DWP will consider whether they have deliberately deprived themselves of that money in order to secure, or increase, entitlement to benefits.

If it is decided that an individual has deliberately deprived themselves they will be treated as still having that money and it will be taken into account as income or capital when benefit is worked out.

MGM Advantage pensions technical director Andrew Tully says: “The DWP could not be any clearer in how they will treat cases where people have either deliberately or unwittingly spent their pension pots and intend to fall back on means-tested state benefits. We have a duty as an industry to make it very clear what the consequences of this are. But all of the responsibility rests with the individual to tell DWP and the local authority when they take money from a pension.

“It seems clear to me people need to pause before raiding their pensions next month, and ensure they fully understand what the potential long-term consequences of doing so are.”