You could lose benefits by releasing cash from pension pots

We use your sign-up to provide content in ways you’ve consented to and to improve our understanding of you. This may include adverts from us and 3rd parties based on our understanding. You can unsubscribe at any time. More info

More people could feel under pressure to unlock their annuity in the coming months – and, under the pension freedoms, those aged 55 and over have flexibility as to how they take their cash.

But if someone decides to take a lump sum or draw a regular income from their retirement pot, this could potentially affect their entitlement to means-tested benefits such as Universal Credit, Pension Credit or, in some cases, local authority help with council tax bills, researchers said.

With an imminent cut in Universal Credit payments and the end of the furlough scheme, more people may turn to their pot for additional financial support, according to consultants LCP (Lane Clark & Peacock) and technology firm EngageSmarter.

They said that when people under state pension age take money out of a pension pot, this can affect their benefit entitlement in two main ways.

If they end up with more savings, this could have an impact when they are assessed for benefits. Those with more than £16,000 in capital are disqualified from Universal Credit.

And if they use their pension to buy a regular income through a retirement annuity, this payment could be deducted from their benefit income.

Those behind the research said a new website tool – https://www.pensions-and-benefits.uk/ – has been launched to allow savers to check how they could be affected.

Researchers said among those of working age alone, there are well over 1.5 million people aged 55 to 65 on means-tested benefits such as Universal Credit or Employment Support Allowance across Britain.

There is a real risk that members could think they are improving their financial position by drawing on their pension but end up making themselves worse off, they said.

Sir Steve Webb, a former pensions minister who is now a partner at LCP, said: “With millions of people starting to build up modest pension pots through automatic enrolment, this issue is only going to get bigger.

“It is unreasonable to expect individual savers to understand all of this complexity, so the industry and regulators need to work together to help people.”

Peter Robertson, from EngageSmarter, said: “We hope that our calculator will begin to rectify the situation, though ultimately this is a problem which the industry as a whole needs to resolve.”

Source: Read Full Article