Getting pension freedoms wrong ‘could cost you your benefits’
Many people may not realise accessing their pension cash could affect their entitlement to certain benefits and financial help, researchers said.
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Your support makes all the difference.Pension savers could unwittingly cut off their entitlement to certain benefits and other financial help by releasing cash from their retirement pots, experts have warned.
More people could feel under pressure to unlock their pension in the coming months – and, under the pension freedoms, those aged 55 and over have flexibility as to how they take their cash.
But if someone decides to take a lump sum or draw a regular income from their pension, this could potentially affect their entitlement to means-tested benefits such as Universal Credit Pension Credit or, in some cases, local authority help with council tax bills, researchers said.
With an imminent cut in Universal Credit payments and the end of the furlough scheme, more people may turn to their pension for additional financial support, consultants LCP (Lane Clark & Peacock) and technology firm EngageSmarter said.
They said that when people under state pension age take money out of a pension pot, this can affect their benefit entitlement in two main ways.
It is unreasonable to expect individual savers to understand all of this complexity, so the industry and regulators need to work together to help people make the right choices
If they end up with more savings, this could have an impact when they are assessed for benefits.
Those with more than £16,000 in capital are disqualified from Universal Credit, they said.
And if they use their pension to buy a regular income through a retirement annuity, this income could be deducted from their benefit income.
Those behind the research said a new website tool – https://www.pensions-and-benefits.uk/ – has been launched to allow savers to check how they could be affected.
Researchers said that looking at those of working age alone, there are well over 1.5 million people aged 55 to 65 on means-tested benefits such as Universal Credit or Employment Support Allowance across Britain.
There is a real risk that members could unwittingly think they are improving their financial position by drawing on their pension but end up making themselves worse off, they said.
Sir Steve Webb a former pensions minister who is now a partner at LCP, said: “With millions of people starting to build up modest pension pots through automatic enrolment, this issue is only going to get bigger.
“It is unreasonable to expect individual savers to understand all of this complexity, so the industry and regulators need to work together to help people make the right choices.”
Peter Robertson, from EngageSmarter, said: “We hope that our calculator will begin to rectify the situation, though ultimately this is a problem which the industry as whole needs to resolve in a systematic way.”