Pension lump sum withdrawal

berry61
berry61 Online Community Member Posts: 166 Contributor
in Universal Credit (UC)

HI everyone , I did post about this a few weeks ago and poppy12345 did give me some great information.

I requested a £6k lump sum from my private pension to pay off credit card debt which I was advised is allowed by UC. Our assessment period starts 26th ends on the 25th of each month.

I was told by the pension company it can take upto 15 days so I tried to time the withdrawal to coincide with our assessment dates so the amount can be seen going in and out during the assessment period and it was used to pay credit card. However I have checked my bank this morning the 25th June and the amount of just over £4800 after emergency tax has been taken is pending to be paid into my bank which should be tomorrow 26th.

I was told not to notify UC on my journal until the action has actually happened because UC cannot action against something that hasn't happened, but will this lump sum now show on my PAYE account already and UC may use that information in which case it would affect our due UC payment.

Our total savings before this transaction was about £1300 which is lower than what i informed UC back in late January when I first completed our UC migration form application back in late January, it was then around £3000.

Do I tell UC today on my journal about what this amount is going to be used for or not ?

Just very worried now that we may not get any UC amount for this latest assessment period because UC go off what PAYE tells them earnings are. I'm still currently on ssp so earnings are low.

Thanks

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Comments

  • poppy123456
    poppy123456 Online Community Member Posts: 64,052 Championing

    DWP will know about the withdrawal from your pension provider. It’s not treated as earned income so won’t affect it this way.

    Its treated as capital so even if it does affect your UC this month your total capital will be £6,100 so the deduction will only be £4.35/month.

    Once it clears in your bank tomorrow then report the changes. Then at the end of your next assessment period report changes again of your reduced capital and tell them you paid off some debt, which is allowed.

  • berry61
    berry61 Online Community Member Posts: 166 Contributor

    Thanks poppy ,

    Thats a bit more reassuring for me.

    Take care.

  • poppy123456
    poppy123456 Online Community Member Posts: 64,052 Championing

    You’re welcome!

  • berry61
    berry61 Online Community Member Posts: 166 Contributor

    HI @ppoppy123456,

    Just an update on my private pension lump sum withdrawal.

    This money was credited into my bank account on the 26th june which is the start date of our latest UC assessment period.

    As you know from previous discussions I decided to draw down a lump sum of £6K which I did to pay off credit debt, but HMRC have deducted income tax from this and sent me £4818.00

    I am still only receiving ssp since march 2024 and i will be continuing to do so for the full 28 weeks allowed. I've been awarded lcwra in june 2024 and won't be returning to my job or any work so I won't be earning above the tax threshold this financial year. I have claimed for a tax refund on my hmrc on line account so when eventually get this money refunded will this amount be classed as earned income or can I still report this to UC as part of my lump sum withdrawal. Thanks

  • poppy123456
    poppy123456 Online Community Member Posts: 64,052 Championing

    A tax refund is treated as income in the assessment period in which you receive it. You need to make sure you report this once you receive it.

    Please be aware that depending on how much you receive it could reduce your UC to zero for that month.

  • berry61
    berry61 Online Community Member Posts: 166 Contributor

    Thanks poppy,

    Thats a big blow I wasn't expecting. I didn't think they would deduct tax in the first place only to be reclaimed when they knew I wouldn't exceed the earnings threshold.

    I appreciate your reply and help as always.

  • berry61
    berry61 Online Community Member Posts: 166 Contributor

    HI @Poppy

    With regards to reporting the lump sum withdrawal we have spoken about. I have gone onto my journal and gone to changes circumstances, money,savings & investments as you instructed me to do.

    I was only able to report the actual amounts we have in our declared bank accounts , however I wasn't able to explain anywhere what that the lump sum came into our account and the full amount out again to a credit card debt. I just can't how to report this to UC can you please advise.

    Thank You

  • honeyhoney
    honeyhoney Online Community Member Posts: 121 Empowering

    Hi,

    I also withdrew over 3,000 from my private pension and the UC did not take it into account. Also this year I received a tax refund for this and, as I see in today's UC statement, this refund is not included in UC

  • berry61
    berry61 Online Community Member Posts: 166 Contributor

    Thanks honeyhoney,

    I withdrew £6000 but after hmrc deducted tax it was £4818 that came into my bank. Poppy123456 did say UC allow payment of debt but I just can't find how to put my explanation on my journal

  • poppy123456
    poppy123456 Online Community Member Posts: 64,052 Championing
    https://forum.scope.org.uk/discussion/comment/884097#Comment_884097

    A lump sum withdrawl from a pension is treated as capital. If your total capital was less than £6,000 when you took the lump sum then it will not affect your UC.

    When you had the tax rebate, did you report this to UC? If not then you should have. A tax rebate is treated as earnings in the assessment period in which it was received.

  • poppy123456
    poppy123456 Online Community Member Posts: 64,052 Championing
    https://forum.scope.org.uk/discussion/comment/884085#Comment_884085

    Put a message onto your journal and explain what you did with the money from the lump sum.

  • berry61
    berry61 Online Community Member Posts: 166 Contributor

    Thanks for reply poppy,

    Can you explain to me how to put the note on my journal please , as I said earlier when I have have reported the lump sum on our bank account it didn't give me any option to add a note or anything , I don't know how to add a note I haven't done this before.

    Thanks again for your help

  • berry61
    berry61 Online Community Member Posts: 166 Contributor

    Regards the tax refund I haven't had this yet , hmrc are still dealing with requests from May

    Thanks Poppy

  • berry61
    berry61 Online Community Member Posts: 166 Contributor

    Ignore that last post please poppy, I've only just realised you were replying to honeyhoney.

    Thanks not having a good day at all 🫣

  • honeyhoney
    honeyhoney Online Community Member Posts: 121 Empowering
    https://forum.scope.org.uk/discussion/comment/884132#Comment_884132

    Hello

    I didn't inform them about it and I got a refund of 330. After all, HMRC is connected to the UC and they should see it. Since a one-off sum from a private pension is treated as capital, the tax refund on this sum should also be treated as capital. Then it makes sense. My wife's earnings are always visible on the statement. Even when the working hours have been reduced and the earnings are below the work allowance.

  • poppy123456
    poppy123456 Online Community Member Posts: 64,052 Championing
    https://forum.scope.org.uk/discussion/comment/884160#Comment_884160

    I'm afraid you're not correct it's treated as earned income and is completely different to a lump sum withdrawal from a pension. See link and scroll to F6. https://www.legislation.gov.uk/uksi/2013/376/regulation/55

  • honeyhoney
    honeyhoney Online Community Member Posts: 121 Empowering
    https://forum.scope.org.uk/discussion/comment/884164#Comment_884164

    Thanks poppy anyway I will put message on my journal regarding the tax refund.

  • poppy123456
    poppy123456 Online Community Member Posts: 64,052 Championing
    https://forum.scope.org.uk/discussion/comment/884168#Comment_884168

    You're welcome. I know UC check the RTI when an employer reports earnings but if the rebate wasn't through your employer then UC may not know about it, which is why you should always report it.

  • poppy123456
    poppy123456 Online Community Member Posts: 64,052 Championing
    https://forum.scope.org.uk/discussion/comment/884146#Comment_884146

    Sorry, only just seen this, it's difficult to keep up sometimes when advising others on the same thread. Log into your journal and click "add a note to your journal." From there look through the list and find "a change" just explain to them on there.

  • berry61
    berry61 Online Community Member Posts: 166 Contributor

    Thanks poppy,

    Dnt know what we would do without your help

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