Advice Guidance Boundary Review Evidence Final Feb 24.pdf

Advice Guidance Boundary Review – Ferret Information Systems
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Advice Guidance Boundary Review –
proposals for closing the advice gap
FCA Policy Paper
DP23/5
Evidence for the FCA review
Gareth Morgan, Ferret Information Systems
February 2024

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Introduction
We are submitting this evidence in response to the consultation request of December 2023
1. For the ease of understanding, we have placed a description and illustration of the
relevant position of pensions and benefits in appendix 1. Our comments on the
points being considered refer to this appendix, in the hope of avoiding unnecessary
repetition.
2. Appendices 2 and 3 give more information about the company and relevant
products.
3. We have numbered paragraphs for reference
4. We would submit that appendix 1 illustrates the important role that advice should
play in clarifying the choices and options that are now open to people, especially
those with low incomes and savings, following the 2016 pension freedoms.
5. We are particularly concerned about a number of advice and information issues
which seem to fall within the ambit of this review.
a. The bottom-line effect of choices around the usage of pension savings for
those entitled to means tested benefits
b. The availability of informed advice about these choices
c. The affordability of informed advice about these choices
6. We are structuring our submission by commenting on both the content of the
review, in reading order and following that by briefer responses to the questions in
Annex two of the review.
7. We would be very happy to provide further detail on any of our comments, if that
was required and would prove useful.
Gareth Morgan
February 2024

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Comments on the content of the review
1. The foreword to the review points out that
“ … a majority of people are not accessing traditional channels of support such as
regulated financial advice to help them make financial decisions. This means that the
provision of financial advice is often out of reach for all but the already wealthy. I
want to change this and ensure that a much broader range of consumers are
empowered to proactively manage their finances”.
2. While recognising the focus of the FCA, and its regulatory activities, on financial
services companies, it is disappointing that the review is not wider in its
consideration of not just the type and boundaries of advice but also the breadth of
other sources of advice, outside the regulated sectors, In more detail.
Overview (review paragraph references)
3. 1.5.a “8% of adults reported taking financial advice over the previous year”
4. The Financial Lives Survey quoted, more accurately, refers to regulated financial
advice. There are many other sources of financial advice, from informal advice from
friends, neighbours and colleagues to more formal, non-regulated, advice from the
wide variety of money advice, debt advice and general advice services, as paragraph
1.6 points out. While not able, or wishing, to advise on financial products, the latter
services, in particular, are very much more likely to be expert in the financial issues
affecting struggling individuals and families. Financial advice is not just about
investment.
5. 1.12 The emphasis on a regulatory system controlling access to advice through ‘firms‘
risks excluding other, possibly more appropriate, sources of advice and information.
The advice gap
6. 2.3 Once again, the 8% figure quoted, implies that only regulated advice is financial
advice. Regulated financial advice is financially unattainable for the bulk of the
population. This does not mean that they do not seek and receive advice on financial
matters elsewhere. The availability and quality of such advice is a matter of great
concern with already substantial reductions in the funding for the advice services
providing such support, and even more severe cuts threatened.
7. 2.4 It would have been helpful to have more detail about the relationship between
the level of pension savings and the concerns about advice fees. It would be very
difficult to justify the costs of regulated advice for somebody with £10,000 in DC
savings. The level at which the cost of regulated advice may become worthwhile
would be considerably higher than this.

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8. 2.7 We have no argument with any of the points made here. Ignorance and lack of
awareness, in any area, can lead to poor decision-making and poor or sometimes
catastrophic choices. To add a little to some of these comments we would point out:
9. 2.7a Disengagement with their pensions is common but it is not directly linked, for
many people, with the decision not to build a sufficiently large pension pot to
provide an adequate income. The inability to afford to pay such contributions is key
for many low-income people.
10. 2.7c The above comment in para 9 applies here.
11. 2.7e Anecdotally at least, it is believed that at least some high-risk choices in this
area are made because of a recognition that existing resources will be insufficient,
that there seems to be no affordable way of reaching sufficiency and so the ’gamble’
might just be worthwhile.
12. 2.7f It is unfair to talk about the ‘risk’ of advice from unregulated sources without
recognising that, as with regulated advice, there will be good and bad advice.
Implying that there is a likelihood that any unregulated source will be offering poor
or scamming advice is grossly unfair to the many good advisers in that sector
13. 2.8 We would suggest that the difference between holistic advice and information
and guidance is not as clear, defined or as characterised as this suggests. There is no
reason that personalised advice and recommendations could not be given outside
the regulated sector. The crucial difference is that this should not include product
recommendations or comparisons. As appendix 1 shows the type of choices made, in
decumulation, can have a very large effect on income in retirement. Being able to
give personalised assessments of different choices that could be made provides a
real basis for informed decision-making. This kind of service will make use of an
understanding of “a consumer’s overall financial circumstances and objectives” not
with the aim of determining product choice or investment strategies but with the
aim of ensuring that they better decumulation choices can be made. Current
limitations on generalist advice in this area does not seem to permit the level of
personalised detail which makes such work truly useful.
14. 2.9 There is no doubt that a relatively small investment could produce systems, (such
as our pensionForward calculation system used to produce the examples in appendix
1 and described briefly in appendix 3), that would be appropriate for direct consumer
use. Such a system would be even more valuable if it were linked to pension

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dashboards. The real difficulty in doing this is not technical but as this paragraph
points out finding the channel to the numbers of consumers which would make it
both worthwhile and commercially feasible.
15. 2.10 As we have said, we do not believe that there is a genuine issue around this
boundary, for firms or other advice sources, if it is recognised that the personalised
service can be provided without infringing regulatory boundaries.
Initial proposals to close the advice gap
16. 2.15b It is our strong opinion that there is a very big difference in the suggestion in
proposal to that firms could “suggest products or courses of action”. We would
separate these two activities for very good reasons. Courses of action can have very
different consequences, as we point out in appendix 1, regardless of the amounts
involved or the products chosen. It might be described as the course of action being
a strategy and the products involved being a more tactical choice. Thinking of these
as being ace single entity, particularly based on a target market, is mistaken. It is also
important to consider strategy first and products later. That is why the considering
the range of different income or capital usage is so important.
Targeted Support
17. 4.9 As we suggested earier, advice and information need not be limited to a generic
provision based upon a target group; it can be personalised to reflect the individual
circumstances of the consumer. For lower earning and income people, where
benefits may be a relevant factor, it is important to recognise that precise savings,
income and expenditure figures may be needed, as cliff edges in entitlement are
common and generic information cannot reflect the individual position. Benefit rules
and interactions are complex and ensuring that general information is safe, for every
case, may mean that its value is extremely limited.
18. 4.12 We believe that firms who wish to provide a more personalised service, need
not see this as an ‘either-or’ service. With appropriate tools it is possible to produce
a rapid and efficient model of support for those where detailed regulated advice is
inappropriate.
19. 4.16.c.ii It is unfortunate that this scenario points towards a product choice rather
than towards the type of decumulation which would be most appropriate for their
circumstances. Again the target market approach will risk misunderstanding the real
situation of the consumer through a lack of personal detail.

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20. 4.19 individual personal and financial circumstances mean that it is very difficult,
where benefits are involved, to categorise groups of ‘people like you’. It is also
unnecessary when appropriate tools make it simple and safe to be more precise.
21. 4.25 A primarily digital approach fits well with advice tools which are able to provide
the more personally detailed information necessary for properly informed choices.
Types of suggestions offered through targeted support
22. 4.28a ‘People like you’ does not help in the frequent situations where people are no
longer ‘like you’ in detail. Circumstances are increasingly likely to change as people
age, with frailty and disability increasing as well as changes in financial
circumstances. For those dependent on a mixture of state pensions, benefits and
smaller personal pension savings, such changes n circumstance impact both the
needs and the resources that they must consider. The effect of these changes will
mean that people should consider their income needs and how best to reach that.
This may t be simple. As appendix 1 shows, small changes in pension usage can
mean large changes in income and it is vital that such personalised information is
available.
23. 4.28b We would, again, emphasise that, for many people, the choice of a product
should come a long way second to the choice of an approach. Only once the best
approach has been decided by the consumer, after receiving the information about
consequences and implications, should the best product be determined. These two
stages need not be carried by the same advice process or advisor.
24. 4.30 The non-regulated money and general advice sectors provide invaluable services
to the less well-off in society. They find this increasingly difficult with financial
pressures increasing and well publicised cuts in support, particularly from local
authorities usually their core funder. It is impractical to expect them to extend their
services further in this area. We would suggest that a relatively small contribution
from the financial services industry would enable them to take on a greater share of
the support. Whether this could be achieved voluntarily, or whether it would require
a small addition to levies, is not for us to suggest.
Simplified advice
25. 5.14 “Alongside wealth accumulation products, some respondents to CP22/24
requested that we expand the scope of a simplified advice regime to include pensions

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decumulation products, such as annuities, uncrystallised funds pension lump sums
(UFPLS), and flexi-access drawdown (FAD). However, we think that these are financial
decisions which may typically be too complicated to incorporate into a simplified
advice regime. Drawdown decisions, for instance, may have income tax and
inheritance tax planning implications, or complicated interactions with means tested
benefits. So we propose that all pension decumulation decisions are excluded from
simplified advice.”
26. The effect of this proposal could be devastating. What choices to make about
pension decumulation, when means tested benefits are involved, is a decision which
may have serious, often unexpected consequences. Appendix 1 illustrates this in
some detail. What might seem to be a simple choice between drawdown and an
annuity could see the same person losing all value from their savings or maintaining
a more comfortable retirement. The choice between taking savings in a form treated
as capital or in a form treated as income important and very commonly leads to a
large difference in real income. The best choice for individuals and families depends
upon accurate and personalised information.
27. The interactions with benefits can be complex but, with appropriate tools, this
complexity is no barrier to providing accurate information for consumers to base
their choices on.
28. Excluding consumers from receiving such advice may condemn them to receiving no
appropriate advice at all. For almost all people dependant upon benefits, there is no
realistic access to IFAs or other regulated advice. Even where accessible, the level of
expertise about the interaction of benefits and pensions is likely to be low. Other
sources of personalised information are also hard to find and even where benefits
expertise is found, it is rare for there to be pensions impact knowledge in the same
place.
29. The complexity of the interaction can be overcome by the use of appropriate tools,
as described in appendix 3, and such capabilities extend the current levels of advice
from all sources. The tools are not limited in use to benefit cases as the tax/pensions
assessments produced can be valuable in all cases for assessing bottom-line
outcomes.
Training and competence
30. 5.32 If our assertion, that simplified advice should include the interaction of pensions
and benefits, is accepted then there will be a training need. There are existing face to
face and online courses which cover this area. We have been delivering half-day

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online courses covering benefits and pensions on behalf of the Welsh Government,
to frontline workers, as part of the Dangos project. These have accompanying
information packs and eLearning modules. We are currently developing a recorded
version of the content of these sessions.
Specific considerations for pension scheme trustees
31. 7.4 Pension trustees who have, in many cases, a closer relationship with members
and a broader view of their role in providing information and support, are ideally
placed to offer the more personalised information and advice needed. This product
agnostic advice can easily be divorced from any direct provision of income or capital
to members.

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Questions
Q1: In your view, do any of the proposals outlined in this paper adversely affect different
groups of consumers and why?
Yes. In particular the proposal in 5.14 to exclude advice around pensions and benefits. Our
response is in our paragraphs 25 onwards above.
Q3: Are there are any other proposals that we should consider to help close the advice
gap and how can we support the provision of more guidance? Please outline your
proposal in as much detail as possible.
Our views are broadly expressed in the comments above. The proposals are too focussed on
‘firms’ as the only appropriate source of advice.
Q6: Do you support the concept of targeted support and do you support developing a
regulatory framework to deliver it? If not, why not? Are there any key features (in addition
to those discussed below) that you believe targeted support should include?
Again we broadly expressed our views in commenting on a number of areas above. The
proposal is limited in its ambition and fails to recognise the potential for other sources of
reliable and accurate advice and information.
Q8: Do you think there should be restrictions on the types of firms allowed to provide
targeted support, and why?
Limitations should be related to capability and competence. Restrictions should be related
to these.
Q9: Do you agree that the scenarios outlined are appropriate for a new targeted support
regime? Please suggest any other specific scenarios where targeted support might
Our interest is concentrated in the decumulation area. Again the scenarios could go deeper
and would find that more useful information could easily and accurately meet more detailed
needs.
Q12: Which of the 3 options for types of suggestions would be most impactful under
targeted support, and why? Are there any other options we should consider?
Before considering product specific advice in decumulation, it should be considering broadly
the options for usage of pension savings in a product agnostic manner.
Q23: Do you agree that pensions decumulation should be out of scope for simplified
advice, and why?
No! Deliberately reducing the possibility of receiving advice in a crucial area for many
people is entirely unjustifiable. Our comments on this are found in our paragraphs 26
onwards above. Te reiterate, the choice between taking savings in a form treated as capital

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or in a form treated as income important and very commonly leads to a large difference in
real income. The best choice for individuals and families depends upon accurate and
personalised information.
Limiting access to such advice and information would lead to poor decisions.

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Appendix 1.
Pensions, tax and benefits. Their interactions, choices and the effects on
personal incomes
1. The interaction of pensions tax and benefits can be complex but with appropriate
tools can be quickly and accurately assessed.
2. Since 2016, the pension freedoms have introduced for some benefit recipients a new
concept – choice. Up until that time, annuities were effectively a compulsory use of
pension savings that frequently led to a reduced, or in many cases no, real value
being received from the pension savings used to purchase the annuity.
3. It is important when considering these interactions to understand the consequences
over a range of different amounts of either capital or income.
4. Starting with an amount of pension savings usage and then considering the tax and
benefits effect can be extremely misleading, and potentially dangerous. It is very easy
to choose an amount to use from pension savings which may produce no real
bottom-line increase in income, or may even make the individual worse off.
5. In this appendix, we briefly look at the situation in the four main likely scenarios:
a. Working age cases receiving regular income
b. Working age cases drawing down irregular sums of capital
c. Pension age cases receiving regular income
d. Pension age cases drawing down irregular sums of capital
6. The treatment of pension savings in means tested benefits depend upon whether it
is considered to be income or capital. Income and capital treated very differently. The
definition of income and capital can also be confusing.
7. Income is taken into account penny for penny. Income reduces the means tested
benefit, in general, by the same amount as is received, until the entitlement to the
benefit is extinguished. For claimants over state pension age, income from benefits is
taken into account net, after any relevant income tax has been deducted. For

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working age claims income from pensions is taken into account gross, although this is
being challenged.
8. Lump sum drawdowns, or regular payments of capital, from pension savings are
treated as income while regular amounts are treated as capital. The treatment of
capital is very different.
9. For a claimant’s total capital and savings, there are three possible types of treatment
a. Below a threshold figure it will have no effect whatsoever upon benefits
entitlement.
b. Between a threshold figure and a cut off point, for working age benefits,
there will be a tariff or deemed income applied. There is no cut-off point for
Guarantee Pensions Credit, so the deemed income continues to increase until
a benefit is extinguished.
c. For working age means tested benefits, once capital reaches or exceeds
£16,000, entitlement to means tested benefits stops.
10. Looking broadly at the interaction of benefits and pensions, in our examples, there
are four main sets of circumstances.
a. Working age claims where the pension savings are taken as regular income
b. Working age claims where pension savings taken as capital
c. Pension age benefit claims where pension savings are taken as regular income
d. Pension age benefit claims where pension savings are taken as capital
11. Where people take both lump sums and regular income, mixed effects will be
experienced.
12. Looking at each circumstance in turn, there will be different treatments of both taken
and untaken pension savings which mean that the bottom line effect on claimants
incomes can be very different. The absence of easily accessible, affordable, advice or
guidance about these differences make it very easy for costly mistakes to be made
when considering the ways in which to use pension savings.
Working age claims where the pension savings are taken as regular income
13. Regular income includes payments of annuities and occupational pensions and also
includes regular drawdowns of capital.

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14. Regular income received from pensions or pension savings are taken into account in
full and reduce means-tested benefits penny for penny.
15. For legacy benefits, the amount used is the net total after the deduction of any
income tax.
16. For Universal Credit, the amount used is the gross figure without deducting income
tax. There is some uncertainty about this approach but no challenge has yet been
decided.
17. Untaken pension savings are disregarded in the assessment of means tested benefits
for people below state pension age.
18. Where people who are above state pension age are included in a Universal Credit
claim (mixed-age couples) then the older person’s untaken pension savings are
treated as generating a notional income.
19. Untaken state and occupational pensions are taken into account for the older
member of a mixed-age couple as a notional income.
20. Working age claims where pension savings are taken as capital.
21. Taking the whole amount of pension savings as a lump sum or taking irregular
amounts of drawdown will see the amount is treated under the capital rules for
working age benefits.
22. Where the total amount of savings and capital held are below £6,000, there is no
effect upon benefit entitlement.
23. Where the total amount of savings and capital held are above £16,000 there is no
entitlement to working age means tested benefits, unless it is Housing Benefit or
Council Tax Reduction passported by receipt of Guarantee Pension Credit.
24. Between £6,000 and £16,000, a notional amount of tariff income is calculated based
on £1 a week (£4.35 a month) for each £250, or part thereof, between those
amounts.

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25. Pension age benefit claims where pension savings are taken as regular income
26. Regular income includes payments of annuities and occupational pensions and also
includes regular drawdowns of capital.
27. Regular income received from pensions or pension savings are taken into account in
full and reduce Guarantee Pension Credit penny for penny.
28. Where there may be an entitlement to Savings Pension Credit, for those who
reached state pension age before April 6, 2016, real and notional income may initially
generate or increase an entitlement to the benefit and subsequently reduce or
extinguish it.
29. The amount used is the net total after the deduction of any income tax.
30. Untaken pension savings are treated as generating a notional income. This is
calculated using the GAD tables and the 15 year gilt rate.
31. Untaken state and occupational pensions are taken into account as a notional
income.
32. Pension age benefit claims where pension savings are taken as capital.
33. Taking the whole amount of pension savings as a lump sum or taking irregular
amounts of drawdown will see the amount is treated under the capital rules for
Pension Credit .
34. Where the total amount of savings and capital held are below £10,000, there is no
effect upon benefit entitlement.
35. Above £10,000 a notional amount of deemed income is calculated based on £1 a
week (£4.35 a month) for each £500, or part thereof.
36. There is no capital cut-off to stop entitlement to the benefit but the increase in the
amount of deemed income will, in due course, reach a level sufficient to stop
entitlement to the benefit.

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Examples of the effects of pension savings on benefit entitlement
37. For ease of comparison, the examples in all of these cases have rent of £150 a week
and council tax of £1500 a year. The gilt rate used in the assessments was 4.39% as at
22nd February 2024.
38. The pension savings pot in these examples is £30,000
39. The examples illustrate the effects of changing amounts of income regularly
withdrawn or of capital taken and held.
40. Initial benefit entitlement has been calculated using Ferret’s pensionForward
calculator. This has also been used to assess and forecast the effects of using pension
savings. More details of this and other reckoners for pensioners are in appendix 3.
WORKING AGE CLAIMS WHERE THE PENSION SAVINGS ARE TAKEN AS REGULAR INCOME
41. In this example Mr Jones, the 60-year-old single claimant, has no income except for
Universal Credit and council tax reduction. That was £1018.72 per month Universal
Credit and £125.02 per month council tax reduction.
42. If Mr Jones wanted to increase his income by making use of pension savings pot his
first thought might be to take a regular sum or to purchase an annuity.
43. The result is shown in figure 1. Any form of regular income will be taken, gross, from
his entitlement to Universal Credit. The top line may be taken as showing overall net
income.

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44. As he takes a regular income from his pension savings, either as an annuity or as a
regular drawdown, his Universal Credit is withdrawn by the same amount leaving
him with no real increase in income. In this example his Council Tax Reduction, which
has different schemes in different local authority areas of England, has been
passported by receipt of Universal Credit and when that stops the means test for CTR
find his income to be too high and stops immediately. This leads him worse off than if
he had not taken any income from his pension. This is one of many potential cliff
edge effects in the relationship between pensions and benefits.
45. If he was still in receipt of legacy benefits, the situation would be slightly different. If
he was in receipt of income-based jobseekers allowance he would see no income
increase until that stopped. Less net pension income would be required for that to
happen as there are no housing costs included in that benefit. Instead housing
benefit is passported in full until his IB – JSA stops after which it moved onto a means
tested basis where 65% of each additional pound of income reduces the benefit.
Together with the 20% of council tax reduction, this means that he loses 85% of his
pension income until those benefits run out. As figure 2 shows this is still not
happened for his housing benefit when his pension income reaches £1200 a month
Figure 1

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WORKING AGE CLAIMS WHERE PENSION SAVINGS ARE TAKEN AS CAPITAL
46. Again, Mr Jones, the 60-year-old single claimant, has no income except for Universal
Credit and council tax reduction. That was £1018.72 per month Universal Credit and
£125.02 per month council tax reduction.
47. Figure 3 shows the effect of withdrawing sums from the pension savings as capital.
This requires they withdraw to be a single lump-sum or irregular withdrawals. The
figure shows the effect of total capital and savings which are being held at a point in
time. Taking a sum and then gradually spending it would see the resultant effect as at
the capital held at that time.
48. It can clearly be seen that the benefits effect is very different from that of taking
regular income. If the amount withdrawn and held is below £6000, there is no effect
whatsoever on benefit entitlement. As this is a working age claim there is no notional
income from untaken pension savings to be considered. Even where more than
£6000 is taken and held, there is only a reduction in benefit due to tariff income until
the £16,000 cut off point is reached when benefit stops entirely.
Figure 2

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49. If Mr Jones was aware of this different option, open to him following pension
freedoms, it is clear which would be the most advantageous. The question is, how to
make sure that he is aware of these choices and their consequences.
PENSION AGE BENEFIT CLAIMS WHERE PENSION SAVINGS ARE TAKEN AS REGULAR INCOME
50. Mr Jones, the single claimant, has reach state pension age and seen his benefits
move to the means tested Guarantee Pension Credit which is considerably more
generous than working age benefits . He now has no income except for new state
pension, at the average weekly rate of £173.71, £752.74 a month, on February 2023
figures, Guarantee Pension Credit is not payable, because there is a notional deemed
income of £182.50 a month, Housing Benefit of £608.75 a month and council tax
reduction of £112.32 a month.
51. Figure 4 shows the situation in this case and illustrates an often misunderstood point
which requires explanation. As this figure shows initially there is a rise in overall
income which matches the increase in net pension being received. Me after some
time does this pound for pound gain reduce and the tapered reduction in housing
benefit and council tax reduction that would be expected to begin.
Figure 3

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52. This is not an additional disregard of the increasing pension income, it is a reflection
of the fact that the reduction has already been made as notional, income.
53. Figure 5 illustrates the effect that is occurring. With no regular income is being taken
from the pension savings then the notional income assessed, using the GAD tables, is
£182.50 a month. That income has removed any entitlement to Guarantee Pension
Credit and reduced the amount of entitlement of housing benefit and Council Tax
Reduction, as shown.
Figure 4

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54. As increasing amounts of regular income are taken from the savings, the same
amount of notional income continues to be applied in the assessment until the
actual amount withdrawn exceeds the calculated level. From that point the actual
amount regularly taken will be used in the benefits assessment. This is shown in
green in the table in figure 5. As is shown, from that point further reductions are
applied to the benefits resulting in the much reduced level of real income received
for each additional pound.
WITH DISABILITY NEEDS
WITH ENTITLEMENT TO BASIC STATE PENSION
55. If Mr Jones had reached state pension age before April 6, 2016 then his situation
would been a little bit different. For ease of comparison, the basic state pension is
assumed to be the same £173.71 as is used in the younger example. It is common for
basic state pension to be higher than the full rate because of additions such as Serps
and state second pension. As he is now older, the assessment of notional income
under the GAD tables is higher.
Figure 5

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56. Figure 6 shows the same pattern of steep initial increase but now also includes a
small element of Savings Pension Credit , only available to those reaching State
pension age before April 2016.
Figure 7
Figure 6

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57. The table in figure 7 shows this more clearly.
58. If benefit entitlements are higher. For example because of severe disability, then, once again,
things may look different.
59. In that case, there will be an entitlement to both Guarantee Pension Credit and Savings
Pension Credit.
60. While the chart in figure 8 looks similar in outline, the inclusion of the Pension Credit
elements makes an important difference to the results. The table in figure 9 explains
this.
61. The notional income ‘hit ‘occurs as in the examples above but once the actual
income being received is used in the calculation, there is another effect. This now
reduces the Guarantee Pension Credit, penny for penny. The Savings Pension Credit is
unchanged as it is at the maximum at this stage. Housing benefit and council tax
Figure 8

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reduction are passported at the full amount because of the receipt of Guarantee
Pension Credit .
62. This means that the actual income being received, in this example, does not increase
at all for a range of pension incomes. In this example for a regular income from £220
a month to £440 a month there will be no increase in real income.
63. Once Guarantee Pension Credit has been tapered away, the other benefits begin to
be tapered down as well. The marginal deduction rate remains very high until all
benefits have stopped.
64. It can be seen that making a choice about the amount of regular income to be taken
from pension savings is perilous indeed, without adequate advice or information.
Figure 9

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PENSION AGE CLAIMS WHERE PENSION SAVINGS ARE TAKEN AS CAPITAL
65. Mr Jones, is again the 74 years old severely disabled single claimant, who has no
income except for basic state pension which is assumed to be the same £173.71 plus
full Council Tax Reduction.
66. Figure 10 shows the effect of withdrawing sums from the pension savings as capital.
This requires they withdraw to be a single lump-sum or irregular withdrawals. The
figure shows the effect of total capital and savings which are being held at a point in
time. Taking a sum and then gradually spending it would see the resultant effect as at
the capital held at that time.
67. It can clearly be seen that the benefits effect is very different from that of taking
regular income. If the amount withdrawn and held is below £10,000, there is no
effect whatsoever on benefit entitlement. As this is a working age claim there is no
notional income from untaken pension savings to be considered. Even where more
than £10,000 is taken and held, there is only a reduction in benefit due to notional
deemed income until the taper point is reached when benefit stops entirely. There is
no cut-off point for Pension Credit.
Figure 10

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68. There are some points to note that can be seen in this chart. The first of these is the
increase in Guarantee Pension Credit and thus overall income as capital, initially, is
withdrawn and held.
69. This might seem to be counterintuitive but is caused by two factors. First, until the
figure of capital held reaches £10,000 it has no effect upon the means tested benefit.
Secondly as capital is withdrawn from pension savings, the benefit rules require that
the notional income value should be reassessed. As the pension savings value is
lower, the notional income is lower and the benefit increases.
70. When the amount of capital held reaches £10,000, the deemed income calculation
begins and that taper begins to offset the reduction in notional income.
71. In this chart the £30,000 of pension savings is the only source of notional income but
the chart goes on to demonstrate, with a steeper reduction, the effect of holding
other capital on the pension credit and the cliff edge caused by the tapered erosion
of that benefit. Once that stops, the passported housing support also stops and the
capital cut-off in their means test immediately ends entitlement to those benefits.
Figure 11

Page 26 of 34
72. For the younger, but still very severely disabled, Mr Jones, with no Savings Pension
Credit entitlement, figure 11 shows the result is very similar.
73. Without the additional amount of benefit awarded because of severe disability, Mr
Jones sees lower benefit entitlement, without Guarantee Pension Credit, initially, and
with housing support being withdrawn once he holds £16,000 of capital. Figure 12
shows the situation
74. There is, however, a tiny easily missed little element in the chart, which is surprisingly
important. Notice this in figure 13
Figure 11
Figure 12

Page 27 of 34
75. it is more clearly seen in the table, shown in figure 14.
76. As the amount of capital withdrawn and held increases, the notional income of the
remaining savings reduces. In this case, as is shown in the table, when the amount
withdrawn reaches £10,000 the notional income drops to a level where Guarantee
Pension Credit entitlement begins. The increase in deemed income removes the
Figure 13
Figure 14

Page 28 of 34
entitlement once again at £13,500 but for amounts between those figures the
benefit can be claimed.
77. While the actual amount never reaches £5 in the table, and this might seem to be a
trivial figure, it could be extremely important to Mr Jones.
78. The receipt of means tested benefits opens up a number of other entitlements.
Passporting by receipt of means tested benefits is increasingly used by many
governmental and other organisations to determine entitlement to forms of help.
This proxy for financial need immediately provides additional health help, such as
free optical and dental treatment, travel to hospital and other support. It brings into
play things like cold weather payments and free TV licences and very many bodies
such as charities, utilities, local authorities and others treat such entitlement as
opening the gateway to many forms of support. The value of such support can be
many, many, times that of the actual financial value of the benefit itself.
79. The older Mr Jones does not see Guarantee Pension Credit appear in this way, as his
notional income is higher due to his age. He does though see a savings pension credit
entitlement although this does not passport him to housing support, so his Housing
Benefit and Council Tax Reduction both stop when the capital held reaches £16,000.
Savings Pension Credit does not have a capital cut-off so this initially rises and then
tapers away, stopping when his capital reaches £50,000.
80. If Mr Jones was aware of the different options, open to him following pension
freedoms, it is clear in many cases that there is a choice which would be the most
advantageous to him.
81. The question is, how to make sure that he is aware of these choices and their
consequences.
PENSION CREDIT TAKE UP
1. High levels of capital held, was still being entitled to Pension Credits, are surprising to
those more used to the working age benefit rules. This is one of the reasons why
take-up of Pension Credits is so low. DWP research has shown that there are three
main causes for the low take-up of the benefit:
a. ignorance of the benefit
b. a belief that there is no entitlement
c. a worry about claiming having an effect on other help already been received

Page 29 of 34
2. despite efforts by the government and many others take-up has been stubbornly low.
The latest estimates show about one third of entitled households not claiming and
the figure approaches 50% for homeowners. The average amount of unclaimed
Pension Credit is £247 a month.

Page 30 of 34
Appendix 2
Ferret Information Systems and Gareth Morgan
1. Ferret have for over 40 years led at the highest level in the provision of advice and
information in social welfare, producing systems providing such advice and information
in the welfare benefits and social welfare fields.
2. Ferret have led the way in the application of technology in the field, producing the
world’s first benefits advice system in 1981, the world’s first large scale roll-out of mobile
technology in government in 1988 and the first Web benefits advice system in 1995.
3. The company carries out consultancy for governments, local authorities and other
organisations in areas including welfare reform, advice utilisation, digital standards and
related topics.
4. Ferret has won numerous awards, ranging from the British Computer Society Award in
1981 to Best Technology Provider at the Equity Release Awards and Best Technology
Provider at the Pensions Insight Awards. Ferret was a finalist in the 2018 Innovating for
Aging Competition.
5. Ferret provides training in areas of social welfare law and advice both face to face, online
and with a range of eLearning courses. It is currently in the third year of delivering the
very successful Dangos project for Welsh Government, raising the awareness of frontline
workers in Wales about the wide range of financial help available for those in need.
6. CEO Gareth Morgan speaks and writes widely on welfare reform, social security and the
practice and technology of advice and information work. He has spoken at numerous
conferences worldwide on these topics, as well as in the UK, and was the elected Vice-
Chair of the board of Husita, the global association for IT in Human Services.
7. Recent studies include:
a) Joint author of the review of the Disabled Facilities Grant system for the UK
Government 2018
b) Joint author of the review of the Disabled Facilities Grant system for the
Welsh Government 2021
c) Joint author of the review into the Incapacity Benefit System for the States of
Jersey 2021.
8. He has worked in the past:

Page 31 of 34
a) on a project for the UK government, Department for International
Development, advising on the development of Advice and Information
Services in Hungary.
b) on the Care Direct project for the Department of Health using new
technologies to provide information directly to those caring for the elderly
and disabled.
c) on a project for the Isle of Man government making recommendations for the
future of the islands’ social security system.
d) auditing advice services technology usage for Big Lotteries reports
9. He has been invited to give evidence to committee enquiries in both the Commons and
the Lords
10. Relevant publications include:
a) Pension Credit and Mixed-age couples – Mixed Messages - The Adviser
magazine April 2019
b) Support for Mortgage Interest Changes – A loan alone – The Adviser
magazine January 2018
c) Pensions Freedoms – A Vicious Triangle? – The Adviser Magazine, August
2015
d) The Price of Pension Freedoms - Journal of Poverty and Social Justice, June
2015
11. The issues around the financial position of older people has long been a major interest of
his.

Page 32 of 34
Appendix 3
Ferret’s pension related applications
PensionForward
This is the core benefits and pensions advice tool. It calculates current entitlement to both
legacy means-tested benefits and the newer benefits replacing them. This includes, context
sensitive, a detailed help system.
Pension effect forecasting is built into the system and takes current entitlements as the
starting point from which to model the effects of different pension options. The tables and
charts output are used in appendix 1. The options include the use of income, capital or
mixed usage of pension savings. Income tax liability is assessed during the modelling, where
applicable. The user is able to select the ranges of income and capital to be used in the
assessment.
The app is updated whenever rules and rates change and includes a number of reckoners,
some of which are described below
Reckoners:
These are dedicated quick reckoners which make discrete specialised calculations simpler
Notional Income for Pension Credit
- Calculates the notional income from untaken DC pension savings which is used in
assessing Pension Credit. This assessment, if carried out manually, uses GAD tables, 15 year
gilt rates, age and amount of savings
Emergency tax for pensions
- this calculates the tax which may be applied on lump sum withdrawals
State pension age
- shows when State Pension Age is reached, for individuals or couples, and when 'Mixed Age
Couple' rules will apply for state benefits
Mixed Age Couples Loss Reckoner
- Shows when State Pension Age is reached and when 'Mixed Age Couple' rules will apply,
and estimates the lower level of benefit paid to couples on Universal Credit instead of
Guarantee Pension Credit.
Benefits effect of making Pension Contributions
- Making contributions to pension savings, while working and receiving in-work benefits can
affect the amount of benefit received. This is because it may change the amount of earnings
used in the benefit calculation. By reducing the earnings used, contributions can increase

Page 33 of 34
the amount of benefit. The effect is different for different benefits. The reckoner shows the
effect of pension savings on the different benefits.

Page 34 of 34
Ferret Information Systems
4 Coopers Yard
Curran Road
Cardiff CF10 5NB
029 2064 3333
www.ferret.co.uk

Advice Guidance Boundary Review Evidence Final Feb 24.pdf

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Advice Guidance Boundary Review Evidence Final Feb 24.pdf