Pensions and means tested benefits

What are means tested benefits?

When an individual claims benefits from the state, in certain circumstances, it may be necessary to evaluate that individual and their partner’s financial circumstances to see what means they have to support themselves. Having income or savings can affect an individual’s right to benefits.

What 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?

• Attendance Allowance
• Bereavement Support Payment
• Carer's Allowance
• Disability Living 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 that pays more than £85 a week, the New Style ESA payment is reduced by half of the amount over the £85 limit.

What income and capital are assessed for means tested benefits?

Individuals claiming benefits will need to show a means of income and capital below certain levels to receive 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, including money held in a bank account or building society account and 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, 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, whether it is taxable or not, that individual will immediately be classed as holding capital.

If the individual chooses to receive the death benefits in the form of beneficiary drawdown, the withdrawals are treated similarly to drawdown above. If the beneficiary is under state pension age, any taxable, or tax-free withdrawals, must be reported to the Department for Work and Pensions (DWP). For those over state pension age, the individual 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.

However, for an individual over state pension age, in their assessment for means tested benefits, they’ll be asked if they have pension benefits, and the assessment will look to see if the individual is deliberately not accessing their pension. If they are deliberately not taking their pension benefits the local authority will assume a “notional income” is being received and 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 any money in a deliberate attempt to secure (or increase) their entitlement to benefits, the ‘deprived money’ will be considered as income or capital when the benefit entitlement is worked out.