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?

But it wouldn't be deprivation of assets as it's completely allowed. There is no way that when she reaches state pension age and has blown the lot she would be denied housing benefit based on deprivation of assets rules especially if the spending was reasonable over a number of years.

The single/household income limit is completely wrong but I don't see how that's relevant to OP's plans. I also agree that the £100k cliff edge is wrong and out of date but again, how is that relevant here?

The system is wrong in multiple ways and needs a complete overhaul. That is still no excuse for deliberately gaming it to your own advantage. The justification for doing so seems to be loud cries of 'It's not fair'. Well guess what - life isn't and it's never going to be. It's time some people just grew up and learnt to accept it.

But it won't be a whole generation that are life-long renters.
It will be the half of the generation that didn't get inheritances from parents and grandparents, and so got on the housing ladder.

It is a lottery in life - if you are lucky to be born to parents who are home-owners, your life will be better than those who are unlucky enough to be born to parents who rent.

The gap between the haves and have-nots is just widening and widening.

My only plan atm is is to only draw on it if I need private healthcare or old age care later on.

I would be considerably worse off living on my private pension if I were to live as I do now.
I don't feel great ethically about this decision.

The DWP will take your pension pot into consideration at the age you can start taking it, whether you do or not.

No, it' s not allowed:

Deprivation rule

If you spend, transfer or give away any money that you take from your pension pot, DWPwill 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

The DWP can and do go back any amount of years if they suspect someone has deliberately deprived themselves of their assets.

Is every poster who is getting angry about this similarly angry about companies who pay no tax on 100s of millions of earnings or the rich who claim non residence? Billions are avoided…but this is a problem?

Isn’t the question:

Why are UK pensions so low?

Perhaps they will have tightened up the rules and you won't be entitled to all the benefits you hope for having frittered away your money.

You are, you'd need permission from the landlord though, which wouldn't be unduly witheld

I suppose the only thing to be mindful of is is that you never know if they might change the rules how would you feel? If you’d spunk away the 86 grand and then next week they decided that you could’ve kept the £6000 afterwards after all?
That has happened several times throughout my lifetime to friends

Thank you. I wish you well. This is what the Benefits system was designed to do - help people who actually need it, not lazy, piss-taking sods.

So the real question is: how much private pension do you need for it to be better than none?

A tiny pension on top of state pension means you don't get pension credit (the pensioners equivalent of universal credit). And it is pension credit that gives you peripheral perks like winter fuel payment, dental costs, TV licence, etc. ?
I can't see any other way in which getting more income makes you worse off, apart from losing these peripheral perks.

At what level of private pension does the balance tip to make it worth while? Has anyone done this calculation?

(Bear in mind though, that if you want to keep savings over the limit, you won't get pension credit anyway, even if your only income is the state pension.)

People on full new state pension do not get Pension credit either unless they have additional premiums because they are disabled or a carer. the new state pension amount is a few pounds higher than the Pension credit threshold.

I really don't think you should be giving smug responses like this to @nomas about how clever you are to blow your pension on a nice car and nice holidays and then sponge off other people. You may find that you don't get the last laugh in the future. It's pretty obvious that benefits will be cut in real terms (the state pension is a benefit) and also that younger people won't be receiving a state pension. Times are inevitably going to get harder.

How does this tie in with housing benefit?
A renter on full state pension will still need to claim housing benefit, surely? (and council tax benefit, even if a home owner)

And another thing (not aimed at you - I am not assuming you have the answers)
If full state pension is higher than the pension credit rate, is it a big enough gap to make up for all those peripherals that the PC claimants get?

Looking at MoneySavingExpert What is Pension Credit and the eligibility criteria? – Money Saving Expert
These peripherals are substantial. Several hundreds, possibly more.

So if the gap between PC and full state pension is not big enough, would most pensioners actually be better off if they had not paid all their NI while working, got a lower state pension, and claimed PC instead?

I think the issue is that government, LAs, and others are using 'on PC' as a lazy shorthand for 'poor pensioners', whereas those who get full state pension (NI based) and no other income also poor, not really any better off.

OP I don't think you'd be doing anything wrong. It's the system that penalises people who have attempted to make provisions for themselves and then leaves them no better off than those who don't. If they want to motivate people to ‘do the right thing’ then they shouldn't put you in this position. Sounds like you'd benefit in lots of ways by taking this approach, so I say do you and do it.

I’m not sure how you plan to access the funds but remember you can only take 25% tax free initially.

For annoyed PPs (at plan to spend out) at least remember OP is still working and will have to pay tax and NI on anything she takes after the 25% tax free.

OP - really think about this, are there other plans? Could you use the 25% tax free as a deposit for a small flat somewhere? Then use the rest of the money to pay for the mortgage? Could you take a lodger in perhaps if you stretched for a 2 bedroom place? Maybe an older person like yourself. My MIL had to take a lodger in (always women only).

I wouldn’t ever want to plan my financial future based on benefits because they are always at the whim of political policy, political debate and the electorate.

If I were you OP (and I do understand) I’d be trying to find a way to use that lump sum to make a difference in my life, not to spend it so frivolously.

And if you hate the game and want it changed there are a variety of accusations that are thrown at you.

depends what aspect of the game you want changed.

Someone who's paid rent all their lives, hasn't necessarily worked less hard than someone who has a mortgage. One will come to an end at some point and the other won't. Which means you will have rental costs until you die. That means the renter needs more to live on in retirement, that the homeowner.

So that does need accounting for surely?

Gosh. Obviously morally this is wrong. Hopefully you'll get found out for deprivation of assets.

All tax evasion and benefit fraud is not OK. Just because big business evades tax doesn't mean it's OK for Janet in Hounslow to spend her pension then claim benefits.

I've made a huge amount of sacrifices to buy my house and have a pension. Turns out my mate who has done as she pleases all her life will get her rent and council tax paid for her. I'm a lefty but that just isn't right. My friend was quite capable but didn't want to.

But she hasn't really saved. That's a very small pension pot for a 60 year old.

I don't blame you OP. Sounds like you have worked all your life. For me this is no more playing the system than what wealthy people do to legally avoid taxes and of course what you plan to do is legal. I would make sure you have your facts right though before you spend a penny.

Policy can change of course but at your age you are surely past any cutoffs for any major state pension policy changes. Those in most need should at least have enough for food and shelter which sounds like you will.

And yet everyone is up in arms that she might spend some of her approx £6k/year payout.

Either it's a a massive amount and she should be living off it, or its a paltry amount and she's not saved enough. Can't be both.

They're not low, Full state pension is £12,547 p.a. I think that is a bloody good starting point before you start adding your own top up provision.