Paying into a private pension

picchy

Hello everyone,

I'm worried about my future when I retire, as I've never been able to work to pay into a private pension.

I'm on means-tested ESA, HB, Council Tax benefit and PIP care and mobility. Am I permitted to pay a small amount each month into a private pension while receiving these benefits?

Many thanks for any help,
Picchy

poppy123456

Yes, there's no rules against this. You can contribute to a pension even if you don’t pay tax, or have no earnings at all – this includes children. The annual pension contribution limit for non-earners is £3,600 gross - a payment of £2,880 to which the tax man adds £720.

Do remember though that unlike any other savings you won't be able to access this until later in life. A pension pot is also not counted towards any savings.

picchy

Thanks so much for writing back Poppy.

I'm worried about benefit sanctions, as any amount I pay in would be coming from my benefits. Do you think this is still permitted? 

Thanks very much,
Picchy

calcotti

Before considering whether or not to contribute you should take into account that, if the existing benefit system remains unchanged, you will get a State Pension and still be able to claim Housing Benefit and Council Tax Reduction. If you are living alone with a disability you may also get some Pension Credit. If you create any private pension income this could reduce your PC, HB and CTR and may not make you much better off.

Obviously however rules may change.

picchy

That's very helpful Calcotti - thanks very much for posting. I didn't know I might get pension credit or realise how much HB would be reduced. Much appreciated,
Picchy

calcotti

picchy said:

That's very helpful Calcotti - thanks very much for posting. I didn't know I might get pension credit or realise how much HB would be reduced. Much appreciated,
Picchy

To expand further using todays rules.
A full State Pension is £185.15/week.
Pension Credit will top your income to £182.60 if your State Pension is less than this.
it follows that normally for somebody getting the full SP there will be no Pension Credit payable.
However if you get Daily Living PIP, live alone and nobody claims Carer's Allowance or the carer element of UC for looking after you then the PC calculation would include a Severe Disability Premium of £69.40 bringing your PC threshold to £252.
If your SP was £185.15 you would therefore get PC of £66.85/week.
If you get any PC you then get maximum HB and CTR.

Because any additional pension income will be reduced in full from PC it follows that unless you can build up a pension which is worth more than £66.85/week (£3476/annum) you actually get no benefit from it.

Obviously all of the above could change because government can change rules. I also don't know how many years you have in which to save before reaching pension age but you would need a significant pension pot to get an annuity of £3,476/year.

I certainly wouldn't want to discourage someone from making provision for themselves but the decision needs to be carefully considered.

If you did have private pension and no PC you would likely still receive HB and CTR but the pension income will be taken into account (although not in full) and could reduce the HB and CTR.

picchy

I scoured the internet and couldn't find anything this helpful. Thanks so much! It sounds like there is likely little point having a private pension, unless it is a pretty big one as you say. You could have saved me quite a costly mistake, so thanks again,
Picchy

calcotti

If you can afford to set a bit of money aside, building up a reserve fund of up to £6,000 as a capital buffer for emergencies would be a good idea and would have no impact on your benefits.

Biblioklept

Hope it is okay to add that @poppy123456 and @calcotti you are both amazing with the help you give!

calcotti

calcotti said:

If you can afford to set a bit of money aside, building up a reserve fund of up to £6,000 as a capital buffer for emergencies would be a good idea and would have no impact on your benefits.

Should perhaps add too that if you can get afford to save more you could put it into a pension fund because the tax rebate makes it quite efficient. Later on you can withdraw it as a lump sum rather than regular income and a lump sum withdrawal would not affect PC in the same way because a lump sum withdrawal is treated as capital rather than income.

However it still makes more sense to build up an easily accessible emergency fund before thing about pension funds.