Question
To ask Her Majesty’s Government, further to the remark by Lord Newby on 5 February that for deferred payments, the "lump sum is income in the year taken" (HL Deb col 791), whether they will set out the accurate position with regard to the effect of taking a lump sum in excess of £23,250 instead of an annuity on a person’s eligibility to take a direct payment.
Answer
Further to the debate on the Pension Schemes Bill Third Reading (HL Deb col 791), I would like to clarify the point made by my Noble Friend Lord Newby, in response to a question raised by the Noble Lord, Lord Lipsey. In Lord Newby’s response, he set out the position in relation to how lump sums accessed under the new pension reforms would be treated under the tax rules. However, I understand that the Noble Lord, Lord Lipsey was referring to the treatment of such funds under the charging rules for social care.
The new pension reforms will come into force on 6 April and will allow people with defined contribution pensions to access their pensions more flexibly. Where someone chooses to take up this flexibility and withdraw a lump sum, this will be treated as capital. This will then be taken into account in calculating what a person can afford to contribute towards the cost of their care based on the social care charging rules for the product the funds have been moved to. To be treated as income, the resources would need to be in respect of a specified period or form part of a series of payments.
With regard to Deferred Payment Agreements (DPA), the universal scheme introduced under the Care Act will come into force on 1 April 2015 and sets out a national framework for whom a local authority must offer a DPA to. This is based on their level of non-housing assets which is assessed according to the charging framework for social care.
People will therefore need to be aware of how their pension choices may affect what they are asked to contribute towards the cost of their care and their options for meeting that cost.
The Government has committed to support the new pensions freedoms through free and impartial guidance from Pension Wise, to help people make informed and confident decisions about how they use their defined contribution pension savings in retirement. The service will encourage consumers to consider issues such as long term care needs in the context of their decision, signposting consumers to sources of further specialist information as appropriate.