Pension freedoms allow retirement savers to take their money to spend as they wish – or do they?
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The risk is someone taking pension cash and then running out of savings to fund their retirement and asking for the state to help out with benefits could end up with little or no support.
The Department of Work and Pensions (DWP) sensibly has written ‘deliberate deprivation’ rules into pension freedoms that are designed to stop savers from spending every penny they have and then asking for handouts.
The trouble is the DWP has worded the rules so loosely that no one knows what they are and has failed to release any statistics highlighting how many people have fallen foul of the measure.
The DWP says that anyone who spends, transfers or gives away pension money to deliberately secure or increase benefit entitlements will be assessed to see if they have deliberately deprived themselves.
What can you spend your pension on?
If they have, the DWP continues, they will be treated as still having the money and their benefits will be considered on that basis.
Lastly, the DWP will explain the rules, but this is not approval to spend cash and will not guarantee benefit entitlement as each case is decided on its own merits.
So far, the DWP has resisted freedom of information requests and declines to confirm whether any retirement savers have lost benefits as a result of the deliberate deprivation rule.
This matters because retirement savers who choose to take some pension cash to spend on paying down debt, lifesaving medical expenses or a well-deserved holiday could find that they are breaking the rules.
No list of approved expenses
On one hand, Chancellor of the Exchequer George Osborne and Pension Minister Ros Altmann are encouraging retirement savers over 55 years old to exercise their new rights to take and spend their money how they like.
On the other, people spending their retirement savings rather than keeping the money to fund day to day living costs when they have finished work risk losing benefits.
The DWP does not publish a list of expenses considered to fall within deliberate deprivation rules.
The argument is a list of expenses could be interpreted as spending approval and retirement savers would spend their cash up to that level, which is the last thing the government wants to see.
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