Some benefits are means-tested which factors in your income and capital (eg. savings). Because drawing down from your pension is considered income, and taking out a lump-sum to put into your savings is considered capital, your pension could affect the amount of benefit you can receive.
How does taking your pension affect applying for benefits?
In order to receive government benefits that are means-tested, you’ll need to meet a set of eligibility criteria. This criteria often considers how much income and capital you have.
In regards to pensions:
- Income includes any money you regularly draw down from your pension.
- Capital includes one-off lump sums you take from your pension, whether you spend it immediately or save it.
Your pension should only impact your benefits if you’re over 55, since that’s the earliest you can usually access your pension.
If you’re over the Pension Credit age (equal to the State Pension age), the money left in your pension could be included when your capital is being assessed.
How does taking your pension affect benefits you already receive?
If you already receive means-tested income, you’ll want to consider how drawing down from your pension could impact your income as this could impact the amount of benefit you’re eligible to receive.
Means-tested benefits also usually rely on the individual claimant updating their details once their circumstances change.
For example, if you’re out of work and receive Universal Credit, you’ll need to inform the government if you start working again. In this case, the income from your new job would be added to any pension income you receive, and that could impact the level of benefit you receive.
Means-tested and non means-tested benefits
Means-tested benefits which could be impacted by your pension include:
- Universal Credit
- Income Support
- Pension Credit
- Tax credits
- Jobseeker’s Allowance (JSA)
- Employment & Support Allowance (ESA)
- Council Tax Support
- Housing Benefit
- Social Fund (Cold Weather Payment, Funeral Payment)
Benefits that aren’t means-tested won’t be impacted by your pension.
Will taking my pension affect Universal Credit?
Universal Credit is a benefit for people who are on low incomes, are out of work, or can’t work.
It replaces Child Tax Credit, Housing Benefit, Income Support, income-based Jobseeker’s Allowance (JSA), income-related Employment and Support Allowance (ESA), and Working Tax Credit.
To receive Universal Credit you must:
- be on a low income or out of work
- have less than £16,000 in savings between you and your partner
- be under State Pension age (or your partner must be)
Your pension could influence your eligibility because:
- any regular income you receive from your pension will contribute to the income that’s assessed
- any larger lump-sum amount you drawdown may contribute to your savings, whether you spend it immediately or not
For example, if you took out a lump sum of over £16,000 from your pension you’d no longer be eligible to receive Universal Credit as this would tip you over the eligible savings limit.
To see how your income might affect your benefits, use a benefits calculator.
Will taking my pension affect Child Benefit?
Child Benefit is a benefit to help parents or guardians (including other family members and foster carers) with the costs of raising a child.
Any one parent or guardian can claim Child Benefit. However, if your or your partner’s individual income is over £50,000 you may have to pay a High Income Child Benefit Charge.
Your pension could influence whether you’re taxed on the benefit because any income you receive from your pension will contribute to the income that’s assessed.
You can choose to voluntarily stop receiving Child Benefit if you prefer.
Will taking my pension affect Pension Credit?
Pension Credit is a benefit for people who are retired and receive a low income. It can be claimed once you reach the State Pension age, and includes Guarantee Credit and Savings Credit.
To receive Pension Credit you must:
- have an income below £173.75 (or a joint-income below £265.20 with a partner)
Your pension could influence your eligibility because:
- any regular income you receive from your pension will contribute to the income that’s assessed
In addition, receiving Pension Credit could impact other means-tested benefits you may receive.
- If you’re under the Pension Credit qualifying age, only the amount you draw down from your pension will contribute to benefit assessments.
- If you’re over the Pension Credit qualifying age, both the amount you draw down from your pension and the amount left in your pension pot will contribute to benefit assessments.
Keeping track of income from multiple pensions
If you receive income from more than one pension, it might be harder and more time consuming to calculate exactly how much you receive and how this might impact any benefits you receive.
To simplify things, you might want to transfer your pensions into one easy-to-manage plan.
PensionBee can help by combining your old pensions into a new plan. You’ll then be able to view and adjust the income you receive to match your needs, online or using the secure app.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
