Are you allowed to invest in a pension on ESA?

mudskippa

Hi,

I have been on ESA for 4 years now and my health does not show any signs of improving. I am very concerned about the future, seeing as I don't have a private pension. With the way things are going, I am likely to be in poverty if I'm still sick by retirement age.

I currently live well within my means and could afford to invest a little bit of money every month in a private pension. Are you allowed to do this on ESA or would it somehow count as capital?

Many thanks.

WillowCat

Any money you invest in a pension is ignored by ESA (and UC and other working age benefits) until you reach state pension age - at which point of course you would no longer be claiming ESA.

At one time it wouldn't be worth saving in a pension if you were expecting to be still relying on means tested benefits - like housing benefit or pension credit - in retirement. However with the pension flexibilities you can draw down ad hoc lump sums of pension between the ages of 55 and state pension age and they are treated as capital and not income so fall under the capital limits. After state pension age they will assume you will be receiving an income from the pension and will adjust any benefits you get at that point appropriately.

As you are (presumably) not working, you can invest up to £2,280 a year in a pension, and HMRC will add tax back to that so that if you do invest the maximum you will have £3,600 in your pension.

mudskippa

Thank you Willowcat. That's extemely helpful. Do you happen to know if I would be allowed to do a Self-Invested Pension and would HMRC add tax back to that? Many thanks for your help.

want_to_save

I would suggest get a personal pension you dont need to have a SIPP a personal pension or stakeholder would be sufficient and as Willowcat added the tax would be added back

mudskippa

Thanks Want-to,

I was asking because I'd prefer to have a SIPP to be honest. Would it be allowed though, and would it allow get the government tax benefits or not?

Thank you for your help.

want_to_save

mudskippa wrote: »

Thanks Want-to,

I was asking because I'd prefer to have a SIPP to be honest. Would it be allowed though, and would it allow get the government tax benefits or not?

Thank you for your help.

yep a personal pension will allow personal contributions and the tax will be paid to the pension provider. Good luck on the road to pension saving

mudskippa

Thank you