Benefits Expert: Is taking a lump-sum pension a good idea?

editorial image

Q. I am thinking about leaving work, I am 67 and have been deferring my state pension. I live with my wife who is not working or claiming any benefits and isn’t due to retire for a number of years. I have been given options regarding taking a larger state pension or taking a regular state pension with a lump sum. Which option would be better for me?

A. Depending on any other income or savings that you have you may be entitled to claim Pension Credit. The DWP have set amounts that they think that you need to live on; for a healthy couple that amount is £243.25 per week.

When considering your savings / capital the DWP ignore the first £10,000, they then treat you as having income of £1 for every £500 of savings.

That figure is known as your tariff income. If, for example, you had the option of taking a state pension of £150 per week with a lump sum of £15,000, then the DWP would treat you are having £10 per week in tariff income (£10,000 ignored, then £5,000 taken into account at £1 per £500).

If that was your only household income then you would be entitled to Pension Credit £83.25 per week.

If you took a higher state pension of £170 per week with no lump sum for example, then you would be entitled to Pension Credit of £73.25 per week.

It may be the case that you do not see much difference in your entitlement, however, Citizens Advice should be able to do a full benefit check taking into account all of your circumstances.

Q. I have finished work and made an application for Universal Credit. I have been told that I won’t be paid for another 6 weeks. Is there anything else I can claim while waiting for Universal Credit to start?

A. Universal Credit is a monthly benefit, paid on the same date each month and your circumstances are assessed over the full month too.

If you apply for benefit on 1st of the month, then you will have 7 waiting days which you cannot be paid for (some exceptions apply), so your claim will be treated as being made on 8th of the month.

Your assessment period will then run from 8th of that month to the 7th of the next month and any money that you are entitled to during that time will be paid 7 days later; which means that most people will be paid 6 weeks after first applying.

If you need money within those 6 weeks then you may be able to claim a short term benefit advance which would be recovered from your benefit payments once they start.

Louise Young, Citizens Advice