Huge pension lump sum vs housing benefit issue

[terriblyangryattimes]

My mother has recently applied for a private pension that she could have started claiming 10 years ago (From a job she did for a decade in the 70/80's)

She thought she would get a lump sum on the event of her death but they have said it must be paid now, then continue as monthly pension payments. She now has an extreme (to her!) amount in her bank account (I think circa 30k) which means she now is not eligible for housing benefit as the cap for savings is 16k. HB pays 80% of her rent and she pays the rest from state pension.

She wanted to the lump sum to go to me (only child) upon her death - if she gives it to me now a) do I need to pay inheritance tax (it would be about 14k I think she would like to give) and b) is she allowed to do this and then continue claiming housing benefit once she has under 16k in her bank account as savings.
She is 70, is unable to work though not eligible for disability benefits etc and is single with no other income or savings, so this money needs to keep her going for however long she goes for (hopefully many years!) She's in a complete tiz about it all as she understandably doesn't want to spend all her surprise money on rent, but realises this may be the only option for her. She has never had this much money in her life and has bipolar depression so this has stressed her out so much she doesn't know what to do and it's affected her mood badly. I have no knowledge of this area and would love to help her get it sorted (with or without accepting money, it would go into savigns for my children anyway)

Any good resources to try? Can I speak to citizens advice on her behalf? Would they 'tell' on her to the council before we can get it sorted properly?

She can't gift you money and then claim HB, that's deprivation of capital.

CAB would not tell on her!

I agree with the PP - deliberately depriving herself of assets in order to claim benefits is a no-no.

''She's in a complete tiz about it all as she understandably doesn't want to spend all her money on rent'' - gosh me too, but such is life. If she has the money to pay for her rent then that's what it should be used for, I don't think any authority will see it any other way.

Thank you both. Yes I know it is - she has asked if she can return the money to them to keep and then pay upon her death (Which is what she assumed would happen) but because she is so late in claiming it they have said this cannot happen and she must keep it. She is now worrying that she will be homeless once the money has gone, and won't be able to claim HB again because she thinks will change and she might end up illegible for it down the line (which I can't see as she is never going to work again, even if she were healthy enough)

It needs to go on rent: there’s no way around that. You could use it to buy a bigger property for her to live with you I suppose?

Here is why:

Housing benefit are not that likely to find out about the money unless she tells them. If she just gave the money to you they most probably would never know.

Surely at 70 she is state pension age so will of course be able to claim hb once this money has gone. How much is her rent?

@greyblackred

Housing benefit are not that likely to find out about the money unless she tells them. If she just gave the money to you they most probably would never know.

Don’t do this

Will her extra monthly income affect her benefits as well.

She's in a complete tiz about it all as she understandably doesn't want to spend all her surprise money on rent, but realises this may be the only option for her.

This is correct. Deriving yourself of capital or income with the intention of being able to claim benefits is not allowed.

Could she have been mis-sold the private pension? It seems she inadvertently purchased one with a 25% tax free lump sum payout now that she doesn’t want as you say she thought it was paid out upon death. The pension should have other financial options that might better suit her.

I would honestly tell her to contact the pension company and explain that it wasn’t what was “sold” to her and ask for the money to be taken back and that the options be gone over again with you assisting her in understanding them.

You almost certainly need professional advice but prepare to be disappointed. There are, strangely enough, quite firm rules in place to prevent people squirreling away assets to qualify for benefits.

One option she might have is to use the lump sum to purchase an annuity. This would count as income rather than savings so might well have a lesser impact on her eligibility for HB. It would mean though that the lump sum is gone and in return she gets a guaranteed income for life which is not to be sniffed at. Another option might be to put the money into a Self Invested Pension Plan (SIPP). I don't know much about that and whether money in a SIPP is classed just the same as savings in the bank or not but I'd certainly investigate the possibility. If it's a legal option then why not?

I found this on SIPPs and it suggests that the DWP (and I assume other benefits agencies) would equate your SIPP based on how much it would generate if you bought an annuity so that might give her the benefit of maintaining her capital but being no worse off than if she purchased an annuity.
www.pensionwise.gov.uk/en/benefits

Deprivation of assets, she needs to pay housing costs herself now she can afford to.

Could she buy something with it? Obviously shares would be an asset but what about something like gold? I'm sure this is a no but just trying to think of something physical but that would not devalue much or at all. I'm sure there's laws against this though

Why if she has the money shouldn't have to use it to pay for rent?

Do you own your own property OP? Would you consider what another poster suggested and use it as a deposit for a mortgage for a place with a granny annexe? It depends on what part of the country you are in. It wouldn't get a parking space in the South East unfortunately.

Something else. I don't mean to scare you, but Housing Benefit might try to claim your mother has already have deprived herself of income by not claiming that pension as soon as possible. Now legally what counts is intention so your mother ought to be OK, but it could still lead to an unwelcome legal battle.

Your Mum needs to let all the relevant benefits agencies about her cash windfall and her new income. They will then ensure that she continues to receive the benefits that she is still entitled to, if any, and is not overpaid. That is pretty much the only advice that CAB can give her.

Had she had this Incond historically it may have impacted on her eligibility of amount of HB

She needs to do the right thing and stop claiming HB if she us no longer eligible

Bit like shoplifting from Tesco when you have thousands in the bank .

If she wanted to give you the full amount on her death, why is she only planning to give you £14k?

My HB do random checks and ask to see at least 3 months worth of bank statements at any one time, we never know when this check might happen. She needs to tell her council

30k lump sum for a ten year pension in the 70s sounds like a rather good return she must have been paying a chunk in.

She needs to let them know asap, she's got 30k sitting in her account she should pay for her own housing.

If her main concern is that she won't be able to reclaim HB in the future, then do all you can to reassure her around this. But also try and make her see that what she wants to do would be wrong. HB is to ensure people who can't pay rent without help are not left homeless. It is not there to fund an inheritance for you.

Another option might be to put the money into a Self Invested Pension Plan (SIPP). I don't know much about that and whether money in a SIPP is classed just the same as savings in the bank or not but I'd certainly investigate the possibility. If it's a legal option then why not?

There are rules on recycling pension cash.

I don’t think she should have been forced to take a lump Sum - she should at least have been given the option of advice.

She thought she would get a lump sum on the event of her death but they have said it must be paid now, then continue as monthly pension payments.

Where did she get the idea that it would pay out on her death? Given the amounts (30k lump sum after only a decade of service) it sounds like a Final Salary pension, and those usually only pay out to spouses or young dependants on death. Had she died before claiming, it is likely the pension would have died with her.

A friend of mine has just retired early, as she is single. Had she died before retirement, her son would only have received a payout from her pension if he was below 23 (he turns 23 next week). She has taken her 25% lump sum so he at least would get something if she was to die in the near future.

As others have said, why should she receive HB when she has money from a private pension as well as her state pension. How much will she receive monthly from the pension? Those payments will continue until she dies, so added to her state pension, she should have a reasonable monthly income towards her rent even when the lump sum is spent.

She cannot give you £14k to bring it down to £16k, without it being deprivation of assets.