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Savers who spend all their pension pot should not expect to be able to rely on means-tested state benefits, the Department for Work and Pensions (DWP) has warned.

A fact sheet issued by the DWP warns that should savers cash in their pension pot as a lump payment and either spend, transfer, or give it all away they will be treated as still having that money for benefit entitlement purposes.

From today (6 April 2015) savers will be allowed to cash in the their pension pot or put the money into ‘drawdown’ and 25% will be tax free. This is otherwise known as an ‘uncrystallised funds pension lump sum’ or UFPLS.

Pension savers can take one or more UFPLS payments and these can be regular or irregular payments.

Other options also exist, details of which can be found here.

However, the DWP fact sheet reads: “If you spend, transfer or give away any money that you take from your pension pot, DWP will consider whether you have deliberately deprived yourself of that money in order to secure (or increase) your entitlement to means-tested benefits.

“If it is decided that you have deliberately deprived yourself, you will be treated as still having that money and it will be taken into account as income or capital when your benefit entitlement is worked out.”

Andrew Tully, pensions technical director of MGM Advantage, told New Model Adviser: “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.

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


  1. So why introduce this in the first place. So sayta family would like to pay off some longstanding debt because they now have access to a larger amount of cash that doesnt involve a loan does this apply to them ?

    • It was introduced by Giddiot to dump a large amount of real hard cash into the economy, boosting GDP (which is starting to tank) and give the treasury a boost should people draw down sums invoking tax.

      IDS thinks everyone is a scrounger and shouldn’t get any social security.

      However… the issue is the rules about what is “genuine” expenditure and what is considered deliberate deprivation of funds. Its always existed, but never been tested in court/application against such a new policy so will possibly take years and many millions in court fees/tribunals/etc. to resolve. In simple terms, if the money is spent on “real things” or “things of need” then, as far as I am aware, the DWP can’t do anything… the problem will be the DWP and the individual will have wildly differing views of what is genuine expenditure and IDS/DWP will take the default belief that any money used will not be genuine (or will be assumed to be capital even if it no longer exists), but instead take the default position of deliberate deprivation of funds.

      Trust IDS to screw things up as usual.


      If I read that correctly, its even worse… the DWP will just assume that any money taken out of the pension pot sill exists in the pot and any payment will assume that you receive an annuity on the no longer existing amount so will reduce your entitlement to state benefits or it will assume you have the money as capital and whichever is the greatest sum will reduce your entitlement by the most.

      So the question is, who should you follow… IDS who wants to screw you, or Giddiot who wants you to spend spend spend. :-/

    • My second post seems to have vanished, I assume because of a link.

      It seems reading other sites, that the DWP will take any money withdrawn as either capital or calculate an amount as if an annuity was taken. Which ever amount is the greatest will be used as an assumed “earning” so any pension credit will be calculated as if you were receiving this money so pension credits will be reduced, I would also assume other DWP benefits will also reduce if this assumed amount is great enough, so housing benefit and council tax could also be hit. In short, unless the amount you can draw is large enough to buy a house it would not be worth drawing any as you will be worse off thanks to IDS.

      All that said, no one really knows the implications as there are just to many unknowns and DWP policy seems to be totally at odds with both the treasury (giddiot) and pensions (steve webb).

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