Contribution-based ESA (support group) and private pensions

RnK136

My OH has been on the above benefit since March 2025 and is still unfit for work.

In November, he can start to take a couple of private pensions.

Will a monthly pension come under the £85/week rule, i.e. 50p of benefit lost for every £1 over £85/week earnings from private pension?

How will any tax-free lump sum/s affect the ESA?

Not sure exactly what needs to be done and what needs to be factored in for decisions made about lump sums and monthly pension amounts so we know how the ESA would be affected.

The leaflet about "reporting changes" lists so many things, many of which to date have never been requested to be declared so far, e.g. any savings we have, or anything about my income.

Robbie64

For conts based ESA, a lump sum won't have any effect.

How much will the monthly pension be? If it works out at more than £85 per week then it will affect the amount of ESA that is paid, in the way you have described.

Note that conts based ESA counts as taxable income if that is a consideration.

RnK136

The main pension quote is (coincidentally!) £370/month, which is on the £85/week limit.

Another small pension hasn't given a quote yet but could obviously add a little bit more then above £85/week.

Yes, I had also realised about having to count the ESA as taxable income.

Altior

It can be quite complex, but it would be prudent to take sporadic lump sums that are taxable before state pension age. And retain the tax free element until then. To fill the gap between ESA income and the annual personal allowance. It adds to the complexity if there are existing cash savings outside of ISA, therefore savings interest, and the starting rate for savings becomes a factor. I've not thought about it too much, but I think there is scope to take out taxable pension (that would be taxed at 0%) up to the personal allowance, then place that in cash bonds that pay out accessible interest, that would be tax free (up to £6K annual) due to the PSA and starting rate for savings.

It's definitely not prudent to use TFLS if the personal allowance isn't already being maximised, in my opinion.

xylophone

but it would be prudent to take sporadic lump sums that are taxable before state pension age. And retain the tax free element until then.

The OP has not said that these are DC pensions? One or both might be DB?

Altior

https://forums.moneysavingexpert.com/discussion/comment/81963331#Comment_81963331

Yes it's not specified, as they mentioned a quote I interpreted that as an annuity quote, it's not a term usually associated with DBs.

RnK136

https://forums.moneysavingexpert.com/discussion/comment/81963589#Comment_81963589

It is a DB pension

Altior

https://forums.moneysavingexpert.com/discussion/comment/81963595#Comment_81963595

ok. private DB's are a rare commodity!

They are usually index linked, so the income may be pushed over a certain threshold over time, if they are just under it under current values. There is the balancing act with the personal allowance that I touched on earlier. It's a pity there are no DCs to play with.

RnK136

https://forums.moneysavingexpert.com/discussion/comment/81963637#Comment_81963637

His other private pension is a DC, but very very small, pot is only about £15k I think.

Altior

https://forums.moneysavingexpert.com/discussion/comment/81963678#Comment_81963678

Perfect, he should be able to draw down on it using lump sums that are effectively all tax free. Other taxable income needs to be considered, but if that's only savings interest, there is plenty of cover with the starting rate for savings. I would go for a few lump sum withdrawals a year for 3 years, £5K per year. And leave the DB until that is exhausted, unless the funds are needed of course.

One variable to consider is that there might be emergency tax on the lump sum withdrawal initially, but that can be reclaimed.

Emergency tax on pensions | PensionBee