Blow your pension pot and you’ll lose benefits

SAVERS who blow their pensions on a Lamborghini – or any other luxury – under new freedoms are being warned that they cannot expect to fall back on benefits.

The Department for Work and Pensions says anyone who runs out of income after taking part in George Osborne’s pensions revolution could be refused state payouts.

From next month, under the biggest changes to pensions for a century, anyone over the age of 55 will be able to take their retirement nest-egg to spend how they like. When the new rules were announced, pensions minister Steve Webb quipped that savers could spend their cash on a Lamborghini if they wished.

Many are expected to spend the cash on buy-to-let properties, while others are planning to give cash to young relatives to help them on to the housing ladder.

But the DWP says people who spend, transfer or give away their pot risk being denied the safety net of benefits if they are found to have deliberately deprived the state of cash.

They will still have their pensions counted as a source of income or assets when deciding if they are eligible for benefits even though the money may have long been spent.

Tom McPhail, of investment firm Hargreaves Lansdown, said: ‘There is a risk if too many people with modest private savings spend all their money – the department could end up with a spiralling welfare liability.

‘Pension investors still need to take well-informed decisions about how they use their retirement savings.’

Housing benefit, jobseeker’s allowance and employment and support allowance are all meanstested benefits that over-55s could be denied. Those over state pension age risk missing out on pensions credit, which tops up weekly income.

The DWP said: ‘If it is decided you have deliberately deprived yourself, you will still be treated as having that money and it will be taken into account as income or capital when your benefit entitlement is worked out.’ Money Mail special on pensions