The following is a direct extract from the paper:
“Deprivation rule; if you spend, transfer or give away any money that you take from your pension pot, DWP will consider whether you have deliberately deprived yourself of that money in order to secure (or increase) your entitlement to benefits. If it is decided that you have deliberately deprived yourself, you will be treated as still having that money and it will be taken into account as income or capital when your benefit entitlement is worked out.”
Put plainly, if the saver deliberately squanders their retirement savings under the new freedoms, with the expectation that the state will support the individual with higher means-tested benefits, they may well be in for a nasty shock. This may be one of those key details that the general public may not become aware of until it is actually too late, yet at least the DWP has made its position clear here.
So this is yet another facet of pension freedoms for all to be mindful of, and again something that employers may wish to share with their employees.