Pension Lump Sum - How Many Lump Sums Can I Draw Down Without Affecting My Contribution ESA?

corsaman

Hello everyone, hope you are all well.
I currently claim Contribution ESA (support group) which is not means tested.
I want to pay some or all of my mortgage off as soon as possible as the monthy payment is hard to make at times.
My questions:
1/  I understand from reading previous posts that I can take a lump sum from my pension pot without it affecting my Contribution ESA. (I have a SIPP pension account so I can draw down whatever I want whenever I want as its totally flexible) but what I would like to know is how often can I draw down a lump sum from my pension pot without it affecting my Contribution ESA? e.g. once every 3 months, half yearly, every year, every few years etc or is it the case that you can only draw down one lump sum and that is it?
2/ Does the lump sum/s have to come from the tax free part of my pension to be classed as capital or can it come from the taxible amount as well?
Please note I will not be setting up a regular weekly/monthly income payment from my pension as I know that would afect my ESA benefit.
Many thanks to everyone in advance for any answers given to my questions.
Kind regards,
John.

calcotti

That’s a question to which I have never found an answer. The rules say that ‘ad hoc’ lump sum withdrawals are treated as capital and therefore do not affect your ESA. Regular withdrawals are treated as income and anything over £85/week reduces your ESA.

So, do lump sums of random amounts taken at varying intervals still fall to be treated as ‘ad hoc’? Or will DWP see this as a mechanism to exploit the rules and seek to convert these amounts to a weekly equivalent - and if they do what regulation are they relying on?

Certainly if you took payments every three months, every six months or even annually these would appear to be regular.

As ESA is intended to support your living costs the rules seek to ensure that if you have other income to support your living costs the ESA is reduced. Withdrawing lump sums to pay off a mortgage clearly doesn’t help with your living costs (except in that it will presumably reduce your mortgage payments thereby leaving you with more money to hand) but the rules don't refer to intent.

Whether the pension withdrawal is tax free or taxable is not relevant.

Sorry I don’t have an answer.

calcotti

woodbine said:

hi @corsaman I assume that you are aged 55 or over?
It really does simplify things if you take the whole pot in one go, but that's your decision to make, have you considered having a chat with pension wise to get some advice?

https://www.pensionwise.gov.uk/en?gclid=EAIaIQobChMIgKePu-CI8QIVh4XVCh3-uAcVEAAYAyAAEgJnt_D_BwE&gclsrc=aw.ds

There might be tax considerations that would suggest taking withdrawals in more than one tax year.

corsaman

Thank you Calcotti and Woodbine for your speedy replies, very much appreciated.

Calcotti may I ask where did you find that piece of information on your quote in regarding to the rules "The rules say that ‘ad hoc’ lump sum withdrawals are treated as capital and therefore do not affect your ESA" as I cant find anything saying that anywhere and this is something that I would like to have a good read through. Many thanks again.

Woodbine I have contacted Pensionwise already and they did not know the answers and asked me to contact DWP in which I did but the person I spoke to on the phone did not know the answers so they asked another colleague who again did not know so he decided to look things up but could only find answers on Income Related ESA. I suppose this is all a bit of a minefield to everyone lol.

calcotti

corsaman said:

Calcotti may I ask where did you find that piece of information on your quote in regarding to the rules "The rules say that ‘ad hoc’ lump sum withdrawals are treated as capital and therefore do not affect your ESA" as I cant find anything saying that anywhere and this is something that I would like to have a good read through. 

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/932377/dmgch51.pdf
See paragraph 51545

atlas47

Hi @corsaman

I strongly recommend, that you contact the Pensions Advisory Service (PAS) on tel: 0800 011 3797, to enable you get free, impartial and regulated advice.

You should seek a copy of your pension provider regulations, to enable you to furnish this to PAS.

Let us know how you get on.

Best wishes

corsaman

Hi Username_removed
That refers to Income Related ESA not Contribution which I am questioning about but thanks anyway.

Hi woodbine
I will give them a try - thanks

Hi atlas47
I have already tried them but they didn't know for sure and suggested speaking to DWP but they didnt know either - thanks

Hi calcotti
Wow that was very interesting reading especially from 51542-51545 and has answered most of my questions although its not clear whether the lump sum has to come from the 25% tax free bit so thats what I now need to clarify. Thanks a million for this.

calcotti

corsaman said:

.. its not clear whether the lump sum has to come from the 25% tax free bit so thats what I now need to clarify. 

A lump sum is a lump sum regardless of whether it is tax free or taxable.