Pensions and means tested benefits

What are means tested benefits?

Means-tested benefits are forms of financial assistance from the state, based on an individual's and/or their partner's income and savings. The DWP assesses whether someone has enough resources to support themselves, and eligibility depends on their financial situation.

What benefits are means tested?

The following benefits are means tested:

• Cold Weather Payment
• Funeral payment
• Sure start maternity grant
• Council Tax Support
• Housing Benefit
• Income Support
• Pension Credit
• Universal Credit
• Income based Jobseeker’s Allowance
• Income related Employment and Support allowance
• Child Tax Credit
• Working Credit
   

What benefits are not means tested?

The following benefits are not means tested:

• Attendance Allowance
• Bereavement Support Payment
• Carer's Allowance
• Disability Living Allowance
• New style jobseeker’s allowance
• New style Employment and Support Allowance (ESA)*
• Personal Independence Payment
• State Pension

*Although the New Style ESA isn’t means-tested, it’s important to note that if an individual receives an occupational or personal pension over £85 a week, their New Style ESA payment will be reduced. The reduction is half of the amount that exceeds the £85 limit.

What income and capital are assessed for means tested benefits?

Individuals claiming benefits must demonstrate that their income is below a certain level. They must also show that their savings are below the required amount to qualify for means-tested benefits.

Income that is considered includes:

• regular income, such as:
  • salary
  • benefits and pensions
  • income from income protection plans

Capital that is considered includes:

• Cash includes money held in a bank account or building society account. It also includes national savings accounts and certificates. This includes accounts that don’t pay interest.
• investments, including:
  • stocks and shares
  • ISAs
  • Premium bonds
  • Income bonds
• property or land in the individual’s name
• disability-related expenses
• shares or savings jointly owned with others.

It’s important to note that any investments or savings an individual owns jointly will be considered. The assessment assumes the individual holds an equal share. If the individual can provide evidence that they do not hold an equal share, the assessment is based on the actual money the individual has.

How are withdrawals from income drawdown plans assessed?

Withdrawals are assessed for the purpose of means tested benefits. How they are tested depends on the nature of the withdrawal; withdrawal taken on an ad hoc basis, with no particular frequency are assessed as capital, whereas those showing a pattern of regular withdrawals will be classed as income.

The amount that is assessed also depends on the individual’s age:

¹ where no income is drawn, 100% of the rate of the annuity that could be generated by the fund: DMG Chapter 85: Income other than earnings

Are pension death benefits assessed for means tested benefits?

Yes, they are. If a beneficiary of a pension death claim receives a lump sum death benefit, they will immediately be classed as holding capital. This applies whether the lump sum is taxable or not.

If the individual chooses to receive the death benefits as beneficiary drawdown, the withdrawals are treated similarly to drawdown. If the beneficiary is under state pension age, they must report any taxable withdrawals to the Department for Work and Pensions (DWP). They must also report any tax-free withdrawals to DWP. For beneficiaries over state pension age, they will need to report the designated funds to DWP.

Can an individual be forced to take the benefits from their plan?

No, an individual can’t be forced take their pension benefits before they are due to be paid.

For an individual over state pension age, the assessment for means-tested benefits will include a question about pension benefits. The assessor will check if the individual is deliberately not accessing their pension. If the individual is deliberately not taking their pension benefits, the local authority will assume they are receiving a "notional income." Based on this, the local authority will adjust the means-tested benefits being paid.

What if an individual gives away the money they are due (the deprivation rule)?

If an individual spends, transfers, or gives away money to increase their entitlement to benefits, it is considered a deliberate action. This action will affect how their benefits are calculated. The ‘deprived money’ will be treated as income or capital. It will be considered when calculating the individual’s benefit entitlement.