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?

If you take an income from your pension pot, the amount which will be taken into account when assessing your benefit will be the higher of the actual income or notional income. If you take a cash lump sum, this will be taken into account as capital.
It is your responsibility to tell DWP – and your local council where appropriate – if you or your partner take any money from your pension pot.

Deprivation rule

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 benefits.

If it’s 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.

From:

https://www.gov.uk/government/publications/pension-freedoms-and-dwp-benefits/pension-freedoms-and-dwp-benefits

This ^^ Do it OP, guilt free.
Posters here will try and hand your arse to you, but fuckem!
Im planning similar (smaller pot but much higher/private rent)
50 now. Very unlikely to be able to continue working til 68 due to worsening health.
I think it's savvy planning OP, crack on amd enjoy your holidays!

I have a client I have supported recently. I'm a benefits adviser. Client sold his house, gave whole proceeds to son to pay off son's debts. Now rents and claims full UC for rent. No investigation or anything. in fact I know another who has done the same, sold their house , gave whole proceeds of house sale to their son to buy a home and then rent and claim UC. I am baffled how it's allowed. The only reason I can see in the first case was that wife was still working at time of the house sale so they could afford the rent and then the wife became ill and they claimed UC so I guess maybe they saw it that circumstances changed after all the money had been given away.

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.

Right, so that's the income from the £86k then. Not the £86k itself (unless you are drawing down all £86k at once).

I have done that but it sort of happened by accident :-). Long story wtth which I will not bore you.

I manage.

@SuperSharpShooter it's a weird situation to be in isn't it? The post work set-up makes sense if you're a homeowner but if you're not there are massive gaps you fall between. I really don't want my life savings (which is what my pension is) to go on rent and council tax with me being potentially worse off day to day than if I had nothing.

I think I will enjoy my holidays, thank you.

I am kind of in a similar position except my main pension is an NHS pension I can’t access till 67 (unless I have to retire early due to ill health). Never even occurred to me that spending it all and claiming benefits was a possibility. Instead I pay in extra & save as much as I can every month. And accept that I have to pay rent forever.
People like the op make me feel like a right mug! There is really no incentive for ordinary working class people to work hard & save while their neighbours save nothing & get a free ride!

I really don't want my life savings (which is what my pension is)

So, to clear, your £86k is savings not a "pension pot" then.

People like the op make me feel like a right mug!
Hate the game not the player.

Yes an NHS pension will always pay out a monthly amount so no option to take it all out in one go like op can and spend it all, although i guess you will get some of it as a lump sum but unless a very small pension the amount you will get each month will likely rule you out of any means tested benefits.

OP, have you taken advice on this? A pension pot - assuming you're talking about a defined contribution pension, is not the same as savings.

You can get a free consultation with PensionWise to talk through your options.

https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise

Yes, which is £6k, so I'd have to use it to pay my rent, and live off state pension. I'd also be liable for council tax, which is another £165 a month I'd need to find. Council tax support is different for every council but I know ours certainly counts parts even of UC for disabled people as income ie they're having to pay this tax from their benefit money. The only way to guarantee council tax support in retirement is to be fully reliant on state pension.

I'd be worse off with the annuity than without it.

It's my pension. I've saved it up during the course of my working life. So it's also my life savings. Sorry if that wasn't clear!

Your employer has likely contributed a similar amount to what you have though?

You could think of it a different way like what if you met a partner and joined finances with them? You would then likely still not qualify for any means tested benefits because of 2 x state pensions but have pissed all your pension away and may not have money left to enjoy nice holidays etc in your retirement. I guess no-one knows what the future holds.

Yeah I can take 25% as a lump sum at retirement so no chance of doing what OP is considering. I’m too honest to do it anyway, even if it makes me the idiot! If we all did it what financial state would the country be in? It would certainly quicken the demise of the state pension!

Do whatever works for you to maximise every penny you have, to get the best you can for yourself in retirement and sod everyone else !!!
Let the privileged virtue signal all they like
as they do exactly the same on the sky I promise you !

"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."

I get that you're in a tricky position OP. Home ownership really comes into its own come retirement but you yourself still have rent to pay. So I do sympathise - to an extent. But by referring to accounts as traceable and deliberately avoiding them for that reason you are encroaching on benefit fraud territory. And who pays the cost of benefit fraud? That's right, us lot.

3%. Not giving it back.

OP, the benefits system is in need of really drastic reform. There is absolutely no way it can carry on like this for the next 15 years. Surely, as no one knows what is around the corner, your best bet would be to carry on working to at least retirement age and you pension will have grown.

Such an interesting thread 🤔

It is isn't it. I would say though in my line of work I get insight into a lot of older people's finances and there are huge numbers doing exactly what op is planning and leaving themselves with next to nothing to fall back on and then looking to claim everything they can in retirement. I guess that's why our benefits advice line for older people is constantly busy !

It's my pension. I've saved it up during the course of my working life. So it's also my life savings.

I think you've confused many of us here. Yiu keep saying pension when I think you mean straightforward savings (that yes you have saved for your retirement). Savings in a savings account. Not savings in a pension fund.

I really can’t comment on the more general aspect of your financial position, but I wanted to reassure you that renting in later life has a lot going for it. I’ve been renting for 18 years now, first while I was working because I had a house tied to my job, and am now in a furnished flat share in my retirement. The best thing is that maintenance isn’t my problem - I just contact the landlord’s agent and they sort stuff out. I know exactly what my monthly outgoings are, and there are no unexpected big bills. Everything that is left over after the rent is paid is mine to spend as I wish. I have only the stuff I need day to day, so life is very uncomplicated. My flatmates and I split the chores and we have a kitty for cleaning products, loo rolls etc.

I wouldn’t ever want to own property again, and I like sharing. It’s not everyone’s choice, but it’s a perfectly reasonable way to live on a modest pension.

I'm fully in favour of benefits for people who need them but that sort of expenditure is taking the piss.