Pensions and Claiming Benefits

SwimFishS1

Hello all,

Newbie forumite here, so please go easy with me.

I’m currently in my 50’s and claiming benefits as a disabled person.

My question is, can I start a pension and contribute to it whilst claiming these benefits?

Any information and advice that could be imparted, to help me understand what I can and cannot do under these circumstances, would be greatly appreciated.

Marcon

This is likely to be very helpful reading: https://www.litrg.org.uk/pensions/paying-pensions/pension-contributions-effect-state-benefits

Grumpy_chap

https://forums.moneysavingexpert.com/discussion/6657271/pensions-and-claiming-benefits

Welcome to the forum.

Do you have any earned income?

If not, your pension contributions are limited to £2,880 (£3.6k grossed up). If you pay £2,880 into the pension, the Government add tax relief making it £3.6k into your pension fund. You can receive this tax relief even if you have not paid income tax.

SwimFishS1

Hi GC,

In answer to your question, no I don’t have any earned income.

Judging by the information that you’ve provided, it would appear that I can contribute to a private pension, but these are capped to how much they can be, i.e. £2880?

Is it therefore the case, that someone such as myself, given my circumstances is unable to contribute more than the above figure?

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/81902974#Comment_81902974

If you don't have any earnings then yes, that will be your limit (each tax year).

It might not be a huge amount but you still get the £720 basic rate tax relief even if you haven't paid that much tax in the first place.

Altior

Something to consider if you are on UC, if you draw on the pension your UC will be reduced for every £1 drawn.

ie there's no benefit, in fact it's the opposite.

When you reach state pension age, everything drawn will be taxed at your marginal rate (ie 20%) aside from TFLS. Assuming there is no miracle in the interim and state pension will be less than the personal allowance, and tax rates don't change.

So the only benefit for you if you expect not to be working again is the TFLS after drawing the state pension (assuming no deferral). It works out at 6.25% of the net contribution, but in your 50s that's quite a long wait for the modest benefit, imo.

For example contribute £1K, topped up to £1.25K. £1.25K * 0.25 = 312.5. 1250 - 312.5 = 937.5. 937.5 *0.8 = 750. 750 + 312.5 = 1062.5. 1062.5 - 1000 = 62.5. So the benefit overall is £62.5 for locking up £1K until UC ceases and you move to SP.

The above example shows all the working, but more simply all you need to do is multiply your contribution by 0.0625 to show the net benefit that can only be drawn after SP (without impacting UC).

There are other considerations eg if someone is likely to inherit your DC pension and you don't plan to use it for yourself.