stakeholder pension

edited 30 November -1 at 1:00AM in Pensions, Annuities & Retirement Planning
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Legacy_userLegacy_user Forumite
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I have been advised that I should take out a pension as my state pension when i retire will not be enough to live on.As I am long term disabled (income support + disability premium) I am confused that if I take a stakeholder pension and start contributing will it affect my benefits.I have contacted my local jobcentre plus and was told it should n't affect my benefits at all.However when the pension can be cashed in ( I want it when I am 65)it may lead to me having less benefit as it will count as income.But surely if I start drawing the pension at 65 and tell the social security that it should n't be a problem,should it?I am 36 at the moment.

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  • MilarkyMilarky Forumite
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    I am confused that if I take a stakeholder pension and start contributing will it affect my benefits
    Paying into a pension shouldn't have any detrimental effect on means-tested benefits. In fact it would allow you to recieve half your net contributions as 'income' [eg someone pays you,and you use this to fund a pension] without affectng your benefit. If you funded the other half from your own current income then you should be entirely unaffected.

    But I'm not sure if a saving for a pension is the best option for someone on long-term means-tested benefits? You are looking to boost your post-retirement income in ways that do not fall foul of the various means-tests, but from what I can gather of these things, the means-tests post 65 would take 40% of any additional pension income into account. And you would have to accumulate a pretty big fund ever to escape from the extent of the means tests in the future as they are due to rise in line with earnings [i.e. faster than prices].

    What you might like to consider instead is some other form of 'exempt' savings products besides a pension - allowing you to accumulate a lump sum, but with the option of how to use it? [You could still use it to buy a pension income but, crucially, you would have the choice]

    It is my understanding that any form of 'life assurance' [a savings plan which pays out on death or maturity] is disregarded as 'capital' for income support [etc] purposes. Assuming you survived to receive a payout at maturity you could then use this money to buy an immediate pension and - because this would be a 'approved' purpose, you should not be suspected of 'diposing of capital to receive a benefit'

    So, the advantage of paying into a pension is only that someone else could partly fund it as a means of paying money to you. If you receive income unexpectedly, then funding a pension becomes 'tax effective' since your benefits would only be reduced by half of that amount - rather than all of it.

    However you might fund a pension, your assessed disability may allow you to get a higher rate of annuity - depending on how your current condition affected your life expectency at the time you came to draw an income.
    .....under construction....
  • MilarkyMilarky Forumite
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    andrew,

    My 'second thoughts' about this are as follows:

    When you retire your income may not be any less than it is today - as you are effectively on a 'fixed-income' [state benefits] that only goes up in line with prices.

    The equivalent 'means-tested' benefits post 65 are, if anything more 'adequate', and more generous - since these are currently being indexed in line with earnings - and therefore rising 'faster' than is your current income.  

    You are not likely to require to 'raise' your income from other sources [eg a personal or stakeholder pension] as a result.

    Unless, that is, your circumstances change - as they may - and you take up salaried employment. In these circumstances you would lose your fixed income and be receiving a higher 'variable' one. The fact that you would then become  used to this higher level of income might make the option of a pension more pressing and logical, but unless this occurs there is nothing particularly to 'commend' starting a pension now.

    Hope that may help

    Regards

    M  :)
    .....under construction....
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