Pension should I or not? Help

TaBunny

Hi, I am on disability and always will be, my money gets topped up by income support as well. Lately I have been dithering with the idea of getting a pension but friends have told me there's no point as the government will always pay me disability on top of any state pension. I don't know if this is true and trying to ask someone at the dept of works and pensions is like pulling teeth. The thing is the income support may penalise me if I start a pension as they count it as savings and money I should be using now, I really am confused and don't know whether to just muddle on as I am or to try and get a pension. Mind you I can't afford to put much away a month as I'm on a limited fixed income. Any help or ideas or your own experiences will be much appreciated.

deemy2004

Your friends are right.
Your probably just wasting your money by paying it into a pension, better to save upto the £3k benefits limit (or whatever it is now) allowable, into cash-isa's

dunstonh

Although that would depend on your age. If the final fund is likely to be under 1% of the lifetime limit, you could draw the whole lot out tax free. In the meantime you would have benefited from tax relief on the contributions.

Your situation is a real problem for how the system works. You may desire to do something for yourself but if you do, you will be penalised for doing it.

nh

Surely there is no tax relief on pension payments when a person doesn't even pay tax? I would say that is the main reason not to pay into a pension when on benefits.

dunstonh

Surely there is no tax relief on pension payments when a person doesn't even pay tax? I would say that is the main reason not to pay into a pension when on benefits.

Pensions get tax relief at a minimum rate of 22% even if there is no income. The makes them particulary attractive to non tax payers.

nh

Wow! Fancy that...

Pal

I am making a few assumptions here, but I wonder what the point is of saving for a pension when you are already on state benefits. When you retire your income will presumably stay more or less the same as at the moment?

The reason why someone who is working saves for their retirement is to ensure that they avoid having to rely on state benefits and can maintain their current standard of living when they finally give up work.

If you are already on state benefits, saving for a pension now will make little difference when you reach age 65.

If you want to save, I suggest using your ISA allowances etc as someone else has already suggested.

TaBunny

Thanks for all the feedback guys and gals.

Pal re your question why a pension? Well to be honest it was just you see things on tv all the time about getting pensions etc and I got pushed by some friends that I should save or I will lose out etc. At the moment my benefits are ok but what if they stop paying out so well for people like myself who cannot work through chronic illness etc. I think that its diabolical that I am not allowed to save more than £3000 and nor are my children as long as they live under my roof so I can't even put money away for their uni etc. Oh well I think for now I will muddle on as I am and hope that the bottom doesn't fall out of the state or I and many others will be high and dry. Thanks again guys.

Milarky

I am making a few assumptions here, but I wonder what the point is of saving for a pension when you are already on state benefits.  When you retire your income will presumably stay more or less the same as at the moment?

The reason why someone who is working saves for their retirement is to ensure that they avoid having to rely on state benefits and can maintain their current standard of living when they finally give up work.  

If you are already on state benefits, saving for a pension now will make little difference when you reach age 65.

If you want to save, I suggest using your ISA allowances etc as someone else has already suggested.

As ever, a pithy and to-the-point reply from Pal.

However, the treatment of savings/pension for those on benefits is complex - and it does no harm to be aware of these:

For instance,

Cash in ISAs is not exempted from £3000 diregarded savings threshold - so the only benefit compared to non ISA accounts is the actual rate of interest. If you are on benefits then - chances are - part of your annual tax allowance remains unused. You are - in effect - a non taxpayer. Thus ISAs at 5% paid gross should be compared with regular saver accounts paying 6% or 7% gross [allowing for the hassles of making regular payments]

Cash paid into a pension however can be disregarded in part - 50% of net contibutions, I think - but only against earnings! This makes contributing to a pension whilst working part time and claiming benefit slightly better than simply working part time and claiming benefit but the overall effect is that is still costs you the same to fund a contribution albeit from a slightly larger pot. [of combined benefits and earnings]

Pal's remarks therefore seems the most useful as far as advising is concerned - if you are in receipt of benefits then the 'replacement rate' of pension you will receive anyway largely, if not entirely, negates the 'benefit' of saving for a pension