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        Updated: May 29, 2024

        Private Pensions and Benefits

        Does claiming benefits mean you can't have a personal pension? Read our in-depth guide to find out more.

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        We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in pensions. Ask us a question and we'll get the best expert to help.

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        Thanks to the pensions reform act, you can unlock your retirement pot once you reach 55. However, if you’re currently receiving means-tested benefits, it’s important to know how your personal pension – whether drawing down an income or not – could affect your financial position.

        In this guide, we take a brief look at the relationship between personal pensions and means-tested benefits.

        If you’d like tailored advice for your circumstances, we can put you in touch with one of the experts we work with for a free chat. We only work with regulated, independent financial advisors to make sure you truly get the right advice for your circumstances.

        Make an enquiry to get started.

        Can you be on benefits and pay into a personal pension?

        Absolutely. There are three personal pension subtypes for you to choose from: a stakeholder pension, a self-invested personal pension (SIPP), and a private pension.

        Also known as a group personal pension, a stakeholder pension works in a similar way to a private pension; although these products are considered a lower-risk option as they’re regulated more heavily than a private pension.

        The pension provider also cannot increase your minimum monthly contribution, unlike with a private pension, so a stakeholder pension could provide more stability.

        Speak to a expert today

        Does your personal pension affect your benefits?

        Yes, any income or lump sums from your personal pension can affect your benefits if your means (i.e. income, savings and investments) become greater than your needs (the amount the government estimates you can live on).

        This applies if you take money out of your pot or leave it in.

        ‘Means-tested benefits’ are calculated based on how much income and capital you have, so once you start drawing down an income from your personal pension, your benefits will likely be reassessed.

        Means-tested benefits can include the following:

        • Housing support
        • Tax credits
        • Income support
        • Income-based jobseeker’s allowance
        • Pension Credit
        • Income-related Employment and Support Allowance (ESA)

        Taking out a lump sum from your personal pension and putting it into your savings could also affect your entitlement.

        If you have under £6,000 (£10,000 if you’re over the state pension age) saved it will not affect your benefits, but if you have capital of £16,000 or more saved, you won’t be entitled to receive any financial support.

        Anything from £6,001 to £15,999 will be treated as income for £4.35 for each £250, or part of £250.

        For example, if you take out £8,000 from your pension and put it into your savings, the first £6,000 will be ignored, but the remaining £2,000 is counted as giving you a monthly income of £34.80, which will be factored in when assessing your benefits.

        You can use the following calculation to work out this monthly income:

        £2,000 ÷ £250 = £8

        8 x £4.35 = £34.80

        For the right information, speak with a pension expert for a free, no-obligation chat about your options.

        How does it affect Pension Credit?

        The rules will be different depending on whether you’ve reached your Pension Credit age. Pension Credit is a government benefit for people over the state pension age, though this age is different for everyone and depends on your sex and age. It’s designed to top up your income if you are struggling. See the sections below for more information.

        Before Pension Credit age

        Any money taken out by you or your partner before your Pension Credit qualifying age will be considered when your benefits eligibility is assessed. For example, if you draw down an income from your personal pension before your Pension Credit age.

        After Pension Credit age

        After you reach your Pension Credit age, any money you take out or leave in your pension pot will be considered when assessing your eligibility to receive means-tested benefits.

        Does having a personal pension affect Universal Credit?

        Yes, having a private pension could affect your Universal Credit. For every pound of non-work-related income you receive, your Universal Credit will be reduced by a pound. If you claim this benefit, any taxable income you take from a pension will also be taxable income for the purposes of tax credits. So, you could end up with tax credit overpayments that you would have to pay back.

        You may also receive less tax credits the following year as they are calculated based on yearly rates and yearly income figures.

        If you make personal pension contributions, you may want to inform the Tax Credit Office regarding the amount you contribute into the scheme, including any tax relief you may get.

        While you don’t have to tell them about these changes until you claim renewal is due, you may want to tell them sooner to avoid any overpayments.

        Will a personal pension affect an ESA?

        Yes, it could do. Your Employment and Support Allowance (ESA) could be affected by regular income drawdown from a personal pension if you receive more than £85 a week. For every pound from your pension income that goes over £85 per week, your ESA will be reduced by 50p.

        Does a personal pension affect carer’s allowance?

        Yes, it may do. Carer’s allowance is taxable, but you’ll only have to pay tax if you take an income from your personal pension, or if you work part-time.

        You can still contribute to a personal pension scheme. If you’re looking at personal pension plans because you’re worried that you are unable to work or don’t earn enough to make National Insurance (NI) contributions, you’ll get National Insurance credits which go towards your state pension (if you’re under the pension age).

        Taking out a personal pension won’t affect these credits and while it’s always a great idea to think about your future by paying into another pension scheme, you may be thinking about how much it’ll cost you. Luckily, we work with independent pensions experts who can find pension plans with low contributions.

        Make an enquiry and we’ll match you with someone for a free, no-obligation chat.

        Can I claim jobseekers’ allowance if I have a private pension?

        Yes, you can, although you may be entitled to less if you have a personal pension as New Style Jobseekers’ Allowance (JSA) is calculated based on your age, income and savings. If you’re currently paying into an existing personal pension plan and are worried about meeting the payments, you could request to pause or cancel your contributions into the scheme. However, this will depend on your policy’s terms and conditions, and what type of scheme it is.

        Speak to an expert

        Taking out a personal pension can give you an extra financial boost in your later years, but if you’re worried about how a pension could affect your benefits in the present, then speak with an expert.

        They have experience in providing tailored advice to people with various backgrounds and can find pension plans to suit your needs. Your initial chat is free and there’s no obligation to take things further.

        Ask A Quick Question

        We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in pensions. Ask us a question and we'll get the best expert to help.

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        Richard Angliss

        Richard Angliss

        Finance Expert

        About the author

        Richard Angliss has made a career in financial services which stretches over 40 years.

        His early career was spent learning about the various financial products and applying them to prudent advice, working for one of the largest life assurance and investment firms. After that he joined the financial services arm of a very well-known firm providing independent advice to their 8 million customers.

        For the last 20 years he has been involved in building software solutions that help Advisers and clients work together to achieve good financial outcomes and helping to set up three independent advisory firms. He also has written many articles for financial services publications and provided commentary for newspaper journalists.

        At an early stage in his career he realised the great satisfaction that comes with being able to help people achieve their goals and protect their families. “Regulation of financial services has hugely impacted on ensuring people get appropriate advice. The issue these days is access to that advice and just as importantly regular reviews to make sure that everything stays on track”.

        With the growing development of online resources such as Online Money Advisor he sees a great future for people to access advice to make their pension and investment work harder for them.  Plus, of course, to ensure they have insurance products in place that will be required when unforeseen events happen.

        He knows getting that balance right is crucial to prudent financial planning and the wellbeing of individuals and their families.

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        *Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us as well as any of our own are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

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