esa and work pension? will I lose some?

bundly

Sadly I don't know much about money matters, and can't find an answer to this on the net.

I am in receipt of "Contribution Based" ESA. I get £73.10 plus £37.65 for being in the "support group". So, £110.75. I see no prospect of ever being well enough to work again.

I get my state pension in 6 years.

Just received a letter from the pensions department of a previous employer.

I will be 60 in a few weeks and they want to know how I want my occupational pension. My options are:

- a lump sum of £13,000 and a yearly pension of £2500.
- no lump sum and a higher yearly pension of £3600.
- something in between e.g. lump £10,000 and £2880 per year.
- defer taking my pension till I get my state pension in 2024, or any year up to 2036

It states: "Lump sums are tax free but pensions are taxable". I don't know if that is relevant.

Presumably my ESA will be reduced if I take my pension now, but what if I take a lump sum, or defer it till I get my state pension?

Which is the better pension option for me to take?


Thank you to anyone who can answer this.

Nannytone

Any pension over £85 a week would affect your ESA.
From £86 onwards they deduct 50% of the pension from your contribution based ESA.

you need to look at it and work out the best situation for yourself/B]

bundly

OOh thanks, that IS interesting.

£85pw is £4,420 a year. So even if I took the highest pension I would not reach £85pw.

Alice_Holt

On solely Contribution-Based ESA, I think it shouldn't be affected by any of those options, since your annual pension will be less than £4420 per year (being £85 pw times 52).
And the lump sum won't affect CB ESA.

"Pension income rules
If you receive contribution-based ESA and have a gross pension income of more than £85 a week, the amount of benefit payable will be reduced by half of the excess.
The excess is the difference between £85 and the actual pension income. For example, for a pension income of £100, the excess is £15. The amount of ESA payable is reduced by half of that, which is £7.50.
If you receive income-related ESA, any pension income you have will be taken into account, regardless of the amount."

If you are in receipt of housing benefit or council tax reduction, this would be affected.
You could put the options in a benefits calculator to check the effect.

If there is any Income Based top up to your ESA (e.g the c.£15pw Enhanced Disability premium because you are in the SG), then this will be lost when the pension is paid.

It might be an idea to get an appointment with Pension Wise
https://www.pensionwise.gov.uk/en

Best wishes.

bundly

[QUOTE=Alice Holt

It might be an idea to get an appointment with Pension Wise
https://www.pensionwise.gov.uk/en

[/QUOTE]

Cheers, Alice.

Seeing as whichever pension option I take won't affect my ESA, what would I be asking Pension Wise about?

I think I am going to take the maximum lump sum and add it to my Stocks & Shares ISA, and take the reduced pension.

Alice_Holt

bundly wrote: »

what would I be asking Pension Wise about?

I think I am going to take the maximum lump sum and add it to my Stocks & Shares ISA, and take the reduced pension.

More for general advice on the options.

- a lump sum of £13,000 and a yearly pension of £2500.
- no lump sum and a higher yearly pension of £3600

If you take the lump sum then your break-even age is 71, eleven years away.
(Being £13k divided by £1.1k --

---

£,3600 - £2,500 = £1100 pa)
If you anticipate living into your 80's the higher pension may be worth considering.

Is it index-linked? That's a factor.

Have you got your state pension forecast?
Any more occupational pensions payable?

If you take the lump sum would you be better putting it (gradually) into a SIPP and getting the tax uplift?
Non earners can put £3,600 pa into a SIPP (£2880 net).
The Pensions Board here may be worth a post re your Pension options.

bundly

Is it index-linked? That's a factor.

It's Railway Pension Scheme. I went to the site and it states:

"Annual pension increase. Your railways pension is reviewed every year. It increases in line with orders published by the government, and is matched to the Consumer Prices Index (CPI) figure for the previous September."

Is that what you mean by index-linked?

Have you got your state pension forecast?

I expect to get just the standard single person state pension. "The full new State Pension is £159.55 per week" - so I will be £40pw better off than on ESA.

Any more occupational pensions payable?

No.

If you take the lump sum would you be better putting it (gradually) into a SIPP and getting the tax uplift?

I have been paying £306/m into a SIPP for 2 years. There's 15k in it now.

Thanks for working out the break-even, Alice. I do not think I will live to an old age. I would rather have the biggest lump sum I can get, right now, and the lower income.

bundly

OK I have started filling out the form and there is an option asking me if I would like to "take the level pension option". There are no guidance notes to explain what this means. I found this on their website.

"Level pension. You may want to take your RPS benefits before you can claim your State Pension. The level pension option helps even out your income when you start claiming your State Pension. You draw a higher RPS pension before you claim your State Pension and a lower RPS pension after reaching State Pension age. This option is subject to eligibility and the terms of it will be based on your State Pension age when you take your pension from the RPS."

I want to draw a higher RPS pension before I claim my State Pension and a lower RPS pension after reaching State Pension age. So do I opt IN or OUT of a level pension?