ESA and pension

specious

For someone getting contribution based ESA I understand there is a limit of £85 per week they can receive in pension before the ESA is reduced. 

She has a small public-sector pension, paying £120 a month, and has 5 years to go until state-pension age. She has around £15k in a private pension. 

So £85 x 52 gives a total allowance of £4420 before ESA is impacted. Current pension is £1440 per year, leaving £2980 more possible to withdraw.

Can I ask - does that look right? 
Does the £85 ever go up or has it been set at that for years? 
Private pensions can be very difficult to draw small amounts from - would it be possible to take £2980 in a single payment each year, or would that break  the system? 

Brie

Look at the T&Cs of the pension to see how they pay out money held.  

Also consider what the max savings amount is that might affect ESA to ensure that savings don't go too high.

Spoonie_Turtle

Brie said:

Also consider what the max savings amount is that might affect ESA to ensure that savings don't go too high.

They mention contribution-based, so savings are irrelevant

specious

Spoonie_Turtle said:

Brie said:

Also consider what the max savings amount is that might affect ESA to ensure that savings don't go too high.

They mention contribution-based, so savings are irrelevant

Yes, contribution-based, and as far as we know there are no plans to move that to UC either. 

Robbie64

specious said:

For someone getting contribution based ESA I understand there is a limit of £85 per week they can receive in pension before the ESA is reduced. 

She has a small public-sector pension, paying £120 a month, and has 5 years to go until state-pension age. She has around £15k in a private pension. 

So £85 x 52 gives a total allowance of £4420 before ESA is impacted. Current pension is £1440 per year, leaving £2980 more possible to withdraw.

Can I ask - does that look right? 
Does the £85 ever go up or has it been set at that for years? 
Private pensions can be very difficult to draw small amounts from - would it be possible to take £2980 in a single payment each year, or would that break  the system? 

Bit in bold: it's been £85 since being introduced in 2001 (before ESA was introduced and the contributory benefit was Incapacity Benefit). It's not likely to increase in the near future either so drawing further pensions to bring the total up to the £85 weekly limit runs the risk that one day the sum totals of those pensions will exceed £85.

NedS

specious said:

So £85 x 52 gives a total allowance of £4420 before ESA is impacted. Current pension is £1440 per year, leaving £2980 more possible to withdraw.

ESA is a weekly benefit, and that £85 is a weekly disregard, not an annual one. They could place the private pension (or a part thereof) into drawdown, drawing the weekly balance (or monthly equivalent if paid monthly), and notify DWP of the increased pension income from the date the higher pension payments started. Any pension amounts over £85/week would reduce the ESA payment pound for pound.

This may be a tax efficient way of withdrawing the private pension rather than waiting until state pension kicks in and they exceed their tax free allowance. They would need to speak with the private pension provider to find out what drawdown options are available. Also worth having a free consultation with PensionWise who can go through the options.

specious

NedS said:

specious said:

So £85 x 52 gives a total allowance of £4420 before ESA is impacted. Current pension is £1440 per year, leaving £2980 more possible to withdraw.

ESA is a weekly benefit, and that £85 is a weekly disregard, not an annual one. They could place the private pension (or a part thereof) into drawdown, drawing the weekly balance (or monthly equivalent if paid monthly), and notify DWP of the increased pension income from the date the higher pension payments started. Any pension amounts over £85/week would reduce the ESA payment pound for pound.

This may be a tax efficient way of withdrawing the private pension rather than waiting until state pension kicks in and they exceed their tax free allowance. They would need to speak with the private pension provider to find out what drawdown options are available. Also worth having a free consultation with PensionWise who can go through the options.

Thanks - that is the point of what she is trying to do. Get some additional money to spend just now, while she has spare personal allowance. The LGPS pension will increase with inflation, but going a small amount over the £85 wouldn't be the end of the world. State pension, plus her small current pension will use all her personal allowance on their own. After pension age 75% of any withdrawal will be taxed. 

A concern would be that the pension provider will not want to pay £250 a month. Placing it in drawdown will mean taking the 25% tax-free portion of the drawdown amount first. That is why I was asking about taking one annual payment. Pensionwise sounds like a good idea.   

NedS

specious said:

NedS said:

specious said:

So £85 x 52 gives a total allowance of £4420 before ESA is impacted. Current pension is £1440 per year, leaving £2980 more possible to withdraw.

ESA is a weekly benefit, and that £85 is a weekly disregard, not an annual one. They could place the private pension (or a part thereof) into drawdown, drawing the weekly balance (or monthly equivalent if paid monthly), and notify DWP of the increased pension income from the date the higher pension payments started. Any pension amounts over £85/week would reduce the ESA payment pound for pound.

This may be a tax efficient way of withdrawing the private pension rather than waiting until state pension kicks in and they exceed their tax free allowance. They would need to speak with the private pension provider to find out what drawdown options are available. Also worth having a free consultation with PensionWise who can go through the options.

Thanks - that is the point of what she is trying to do. Get some additional money to spend just now, while she has spare personal allowance. The LGPS pension will increase with inflation, but going a small amount over the £85 wouldn't be the end of the world. State pension, plus her small current pension will use all her personal allowance on their own. After pension age 75% of any withdrawal will be taxed. 

A concern would be that the pension provider will not want to pay £250 a month. Placing it in drawdown will mean taking the 25% tax-free portion of the drawdown amount first. That is why I was asking about taking one annual payment. Pensionwise sounds like a good idea.   

There are many different ways a private pension can be taken. Not all providers will offer all options. If the pension provider does not offer an option that fits the needs, they can always transfer to a SIPP that does offer appropriate options.

As this is effectively no longer a benefits question (you have your answer there), I would ask for more specific advice in the pensions forum about what options may be available as this is now more of a pension issue.

QrizB

NedS said:

There are many different ways a private pension can be taken.

OP has referred to it as a LGPS pension. This is a DB scheme so none of the DC pension options apply.

NedS

QrizB said:

NedS said:

There are many different ways a private pension can be taken.

OP has referred to it as a LGPS pension. This is a DB scheme so none of the DC pension options apply.

I inferred that this was the small public-sector pension already in payment at £120/month, with inflationary increases. Then she has around £15k in a private pension, DC I assume.