Renting into retirement - WIBU to spend my pension pot before age 67?

[Artricha]

I am a housing association tenant and I'm 60 years old. I have a pension pot of £86000. According to best forecasts it would pay out an annuity of £6000 a year which wouldn't even cover my rent. I would then have to pay the remainder of my rent plus council tax from my state pension plus all my living expenses. I have looked into part ownership but that's even worse as the leasehold charges plus rent are around £800 a month.

If I have only £16000 at the point I claim state pension, I will be able to claim housing benefit and council tax benefit too. Day to day living expenses wise I will be no worse off under this scenario. Possibly even better off as there are other benefits that housing benefit is a passport to.

Plus, if I took the money now, I'd quite like to cut down on work over the next few years, give a bit of money to my kids (after all, there won't be anything much to inherit when I die), have a few nice sun holidays in winter, get a decent car, kit my kitchen out with white goods that will last me.

Running down money before retirement is the opposite of what we're told to do, so it feels weird. But I think in my circumstances it's sensible. AIBU?

You would have to be careful that you don't get accused of deprivation of capital and therefore not awarded housing benefit.

Car may be seen as reasonable. Large gifts to family will not.

How are you going to take it? Surely your pension scheme doesn’t just allow you to withdraw it?

Deprivation of assets isn’t a thing for benefits, no one investigates what you did with your money in the past. It’s based on current need

@Itsmetheflamingoyou can cash out your pension when you’re over 55 (going up to 57 in the next few years)

Why wouldn’t they, assuming it’s a DC scheme? If OP’s scheme won’t allow it, she can transfer to a provider who will allow it.

Are you sure you won’t be entitled to some amount of housing benefit with that level of income from the pension pot? Does a pension pot really count the same as if it were savings? I don’t know, you have probably checked this already. If it is as a policy it gives a perverse incentive for people in your situation.
On the face of it doing as you suggest seems to make sense in your situation.

Yes, you would be bloody unreasonable. THIS is why the country’s in such a state. People claiming benefits because it’s easier than, you know, actually working out a budget.

I would go on entitled to.com and play around with the figures to give you an idea. With that level of saving I don't think you would get full housing benefit but hopefully part at least.

Of course it's a thing!
I worked in benefits until very recently. Worked with clients who were accused. Some were able to get benefits reinstated as they showed that their primary purpose was not to be awarded benefits or more benefits. Others didn't.

Yes, I will have to be a bit careful. But really it's only £70k. Three years of winter sun ie a little apartment in the Canaries Jan-March plus spends = £8k x 3, decent car £20k, long lasting white goods and nice telly (I've literally never had one of those) with extended warranties £5k, drip feed the rest to the kids over the next seven years for help with bills, buying cars etc.

This

I'm in two minds......I think that it is absolutely ridiculous, and not at all your fault, that you could potentially do this and be better off just going onto benefits after essentially spunking your modest pension pot......however it's not your fault that this is the way the system is currently set up, so I wouldn't blame you at all for doing the thing that is right for you and moves the counter in your favour.

From an overall economy point of view this is clearly terrible, but that's not really your responsibility to fix.

If you haven't already you could pay for your funeral or whatever you wish for after your death to save your children the expense.

I won't get any.

Hence wanting to spend it. If I don't spend it before retirement it won't be of benefit to me or my kids.

I really hope this wouldn't be allowed. I work full-time, no housing association property, no benefits and could not afford to spend 20k on a car let alone take several months off each year and spending 8k on holidays. You are taking the piss. Do you not have any embarrassment about wanting to sponge off others?

When you say you have a pension pot of 86,000 is that a lump sum?

Would you be happier if OP had not saved at all and just spent it all as she went? Because what she's proposing isn't any different to people who do that, she'd just be spending it later is all.

OP i wouldn't blame you AT ALL. Why should you be harder up in old age because you've saved, whilst another will be better off because they didn't. It makes no sense.

Of course you can. Take 25% tax free and draw down the rest in intervals before state retirement.
You only get one life. Buy a pre paid funeral plan, keep 16K in a rainy day fund and use the rest to improve your life or cut your work hours.

Rather than just blow it, wouldn't it be better for the kids to look after it for you in an ISA or buy gold sovereigns or something?

I believe it’s from £6k in savings that benefits get reduced, if you’re entitled. So more to spend in your case but I also think claimants bank statements are periodically checked. DWP are increasingly using AI to cross reference accounts so I would be very careful and research more before you make your decision.

Does a pension pot really count the same as if it were savings?

Have you double- and triple-checked this? Surely it's the income that counts, not the pot itself.

Gold sovereigns I have thought of and it's certainly a possibility. You don't pay capital gains on them plus don't have to declare when buying under a certain amount in one transaction. The ISAs are a no go I think as too traceable.

Could be a bit of a gamble. Have people ever considered that things could get so financially bad that all these benefits may not exist or could be seriously reduced in the future ? That is that there may not be the money to pay your rent for the next 20+ years after you retire?

They count what they calculate you would get from the pot as income even if you don't take it, once you claim state pension. I have absolutely checked this.

And people complain about their tax bills.