Q&A - An Irish Times Guide To The World Of Personal Finance

Widow's Pension

I think I might be in danger of losing my widow's pension. After means testing, I get £44.50 a week on this non-contributory pension. I will shortly be inheriting about £20,000, of which I will be spending roughly half on home repairs and the purchase of a car. I already have savings of £22,000 in a building society yielding £71 a month after DIRT. Am I really at risk of losing all my widow's pension?

Mrs N.C., Offaly

Your position is somewhat unusual in that most widow's would find themselves more securely protected under the contributory scheme as a result of their spouse having worked under the PRSI scheme within the private or public sector. Their widow's pensions are paid regardless of other income. It is predominantly the survivors of self-employed people, particularly farmers, who will find themselves in your position.

There are two aspects to your own case. The basic widow's pension is £70.50 a week for those under 66, rising to £72.50 for those between 66 and 80 with a further increase thereafter. An increase will kick in next June under the Budget announced this week by Minister for Finance, Mr McCreevy, with the basic pension rising to £73.50 for those under 66, to £78.50 for those aged between 66 and 80 and to £83.50 thereafter.

However, all non-contributory pensions are means tested. In relation to earnings, you would lose £1 of non-contributory widow's pension for every £1 of weekly earnings over a minimum allowance of £6.

The situation with regard to investments and savings is different and more favourable. This has become more so in recent years following a fairly intense lobby. A formula is used to arrive at a notional annual cash value of any investments you hold. This works on the basis of excluding the first £2,000 of investments, taking 7 1/2 per cent of the subsequent £20,000 and 15 per cent of the balance. This annual cash value is then added to any current bank account balance or cash in hand and divided by 52 to determine the weekly income.

In the circumstances you outline, two issues arise in relation to the investment formula. First, the inheritance is obviously a cash payment and would be treated as income in the eyes of the Revenue. However, if it were to be immediately invested, I imagine it would not figure under the earnings part of the equation. However, you would certainly need to get professional tax advice on such an issue given the sums involved and their disproportionate effect on your income. Certainly, if you spend the money on your house or on a car, it will be treated as income. It might be more tax efficient to fund such work and purchases in a different way. Again there is no substitute for professional tax advice. The accountancy bodies, particularly the Institute of Chartered Accountants in Ireland, would be able to give you a list of members specialising in such advice in your area.

Assuming all the money is invested and treated by the Revenue as such, where would this leave you in relation to the pension? Your investments would then amount to about £42,000. Taking away the first £2,000, the annual cash value on the next £20,000 would be £1,500 and the cash value on the balance - assuming it is indeed £42,000 in total - would be £3,000. In total, therefore, the cash value on the investment would be £4,500.

For the sake of the illustration, assume you have invested all the money in the same building society account which yields £71 a month on current interest rates, or £852 a year. With the enlarged investment, the annual return would be about £1,625. Let us further assume, that this is the sum total on your income. The annual notional cash figure now would be £1,500 + £3,000 + £1,625 which comes to £6,125. To find out the weekly figure, we divide this by 52, giving a figure of £117.79. As you can see, this figure clearly exceeds the widow's pension available. As a result, under the means test, you would indeed lose all the non-contributory widow's pension. A professional adviser may suggest an alternative means of investing which might limit exposure.

Adult dependants

Regarding your reply on the issue of adult dependant's allowance, you indicated that such an allowance paid on a contributory old-age pension is not means tested. Social welfare information seems to assert that such an allowance is not payable if the gross means of the dependant is more than £60 based on the means test. Investments held in joint names are deemed for meanstest purposes as giving half the means deemed to be earned as income of the adult dependant. Some of our members have been deprived of the allowance where assets were held in joint names. Can you clarify this issue?

Retired Civil and Public Servants' Association

Despite the information in your recent reply on adult dependant allowance, I received a recent declaration from Department of Social Community and family Affairs in Sligo seeking my signature in relation to a section of "Changes in Circumstances which may affect entitlement to a payment of a retirement pension" which stated "A Qualified Adult is in receipt of income in excess of £60 per week gross from any source".

While I agree it should not be the case, this seems to indicate that a wife's income is taken into consideration before the contributory pension is paid.

Mr G.M.P., Navan

The confusion on my part arises over the type of retirement pension upon which adult dependant allowance is payable. Means tests do not impinge on this element, in that the allowance is payable whether you have a retirement pension, a contributory old-age pension or a means-tested non-contributory one. There is a difference in the maximum allowance paid, depending on the type of the pension. For non-contributory old-age pensions, the maximum payable is currently £41.20 a week. In the case of retirement or contributory old-age pensions, the maximum payable weekly is £56.90 if the dependant is over 66, £52.50 if below. Following the Budget, these will rise to £44.20, £59.90 and £55.20 respectively.

However, whether or not the pension is means tested does not affect the right of a pensioner to claim an allowance in respect of an adult, or indeed a child, dependant, the amount of such an allowance paid is subject to a means test in its own right.

Basically an adult dependant allowance is payable if you are married or living with someone as husband and wife, you may get an allowance for them as a qualified adult. However, there are conditions. If the person receives a social welfare payment other than disablement pensions or supplementary welfare in their own right, no allowance is claimable.

There are also income restrictions. The allowance is payable in full if the adult dependant does not have income of more than £60 a week gross. Beyond that point there is a sliding scale; for every £5 increase in income accruing to the dependant there is a reduction in the amount of the allowance payable. If the dependant has an income exceeding £90 gross a week, no allowance is payable. These thresholds may also be affected by Budget changes.

The important thing is that income, for the purposes of means tests, is income from all sources; income from investments in joint names would normally be split equally between those named as investors.

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