Pension lump sum and Child Maintenance Service.

[Another2Cats]

A family member is divorced and is currently paying child maintenance through the CMS for his DD.

He has recently turned 55 and is thinking about cashing in one of his old pensions and taking it as a lump sum (It's not very big - about £20k in total) but is concerned what effect this will have on his CMS payments.

He rang up the CMS and spoke to somebody but they couldn't give him an answer.

Does anybody here have any experience of this or know what might happen? Would CMS treat a pension lump sum as income? And also, would they treat the 25% tax free part as income as well??

Apparently, when he called the CMS they had no idea about lump sums or tax free parts of it

Unless it itake his total capital above £31,250 then it will have no effect on his CMS assessment. Any savings over £31,250 will be assumed to generate 8% income per annum.

@Collaborate I passed on what you said at the time and everything seemed to be great.

However, CMS have since said that only the 25% is disregarded, but if he takes the whole pension then the other 75% is counted as income in that year.

So, I don't know who's right?

For background, the pension is very small, only about £20k in total. CMS were saying that the 25% tax free (£5k) wouldn't be counted but the other £15k would be counted as his income.

Is this right?

If it’s taxed as income then it will affect his assessment. I had assumed in my first response that he was taking the tax free cash sum.

Is there a particular reason why he wouldn't want to share his increased "earnings" with his children?

He's either wealthy enough to cash in pension at 55 and still have enough in his other pension funds to cover him even if he lives to 100, in which case why would he begrudge his kids a few hundred £?

Or, the £20k would make a big difference to his life and in that case his pension pot is probably quite small and at 55 he should be leaving it alone.🤷‍♀️

@p1ppyL0ngstocking

"Or, the £20k would make a big difference to his life and in that case his pension pot is probably quite small and at 55 he should be leaving it alone.🤷‍♀️"

You really think that?

If he took just the £5k tax free amount then the remaining £15k would give him a pension of around £14 per week.

I'm sorry, but I really don't think that giving up on £14 per week for the rest of your life is such a massive deal if there are current issues in their life.

Why wouldn't he want his kids to benefit? I don't get it.

I received over 1. 5 k over the year in monthly payments as ex had a lump sum pension so it ' upped his earnings'

But on the other side of the coin he paid much less per month for years because he was paying into said pension.

There are some bizarre comments here. “ Why doesn’t he want his kids to benefit?” What world do you live in!! Putting some in a trust fund would be a great idea , yes. Giving an ex partner more CMS payments? What on earth are you thinking?!! My kids mother sends them in clothes too small, doesn’t send them to any proposed extra curricular activities and hasn’t worked in the last 10 years but my pension should help her and her boyfriend? Unreal.

A key question will be what does the divorce final settlement say regarding this pension. Pensions can be shared with an ex spouse.

It was very much a clean break. They were living in rented accommodation and the total value of his pensions amount to around £50k at the present. I don't know what they would have been worth when they divorced twelve years ago.

I think you're projecting a bit there mate.

Im not your mate

Thank god 🤣