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Drawdown Pension

TacexTacex Member Posts: 6 Listener
From January next year I will be able to drawdown some of my pension,  I  know that the first 25% is tax free and I have to pay tax on the difference, but my question is,  how much can I withdraw without it affecting my ESA?

Replies

  • BenefitsTrainingCoBenefitsTrainingCo Member Posts: 2,692 Pioneering
    Hi Tacex,

    I'm guessing from your question that you are under pension credit age (you can check this using the gov.uk tool here). 

    If that's the case, your pension fund only affects your ESA if you access it early, and not if you don't. There are two types of ESA, and pension income affects them differently.

    If you get contributory ESA then you can receive up to £85 a week in regular pension payments without it affecting your benefit. Anything above that reduces your ESA by half of the excess above £85 (for example, if you received £100 in pension payments per week, it would reduce ESA by £7.50 a week). One-off lump sump payments are ignored for contributory ESA.

    if you get income-related ESA then any regular pension withdrawal is taken into account and reduces your ESA pound for pound. If you take a lump sum, then it counts as capital. That means that if you have more than £6000 in savings including the lump sum, you lose some ESA (a £1 per week for every £250 or part of £250 above £6000). If you reach over £16,000 in savings you stop getting income-related ESA altogether. 

    If you get a lump sum which you then spend you can be treated as still having it, so that it still reduces your income-related ESA, depending on what you've spent it on (roughly speaking, if you didn't have to spend it, you'll be treated as still having it).

    Will
    The Benefits Training Co:
    Paul Bradley
    Michael Chambers
    Will Hadwen
    Sarah Hayle
    Maria Solomon
    David Stickland
  • TacexTacex Member Posts: 6 Listener
    Hi Will, 
    Thanks for the very prompt reply it's much appreciated,  just after withdrawing a cash amount to pay for a much deserved holiday for my partner and myself of approx  £2500, would this be a problem do you think? 

    Andy 
  • BenefitsTrainingCoBenefitsTrainingCo Member Posts: 2,692 Pioneering
    Hi Andy

    It is unlikely that this will affect your benefits. However, there is a rule that allows the benefit authority to treat you as having capital you don't actually have if it is considered that you deprived yourself of it in order to get benefit. For example, you inherit £100,000 and you give it to a relative and then claim means tested benefits - you are treated as still having £100k (known as notional capital) and it reduces at the rate of benefit per week that you would ordinarily get. But if in your case you would otherwise have capital under £6000 even if you didn't go on holiday then there will be no problem. If you would otherwise have capital between £6k and £16k then there is a chance it could affect your ESA but only in the way Will described above. If your capital would have been say £18k without going on holiday then you might find your ESA stops completely for some considerable time.

    David
    The Benefits Training Co:
    Paul Bradley
    Michael Chambers
    Will Hadwen
    Sarah Hayle
    Maria Solomon
    David Stickland
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