Here’s what you need to knowPension freedoms have made a huge difference to how you take your pension savings. You can now access your pension money from the age of 55, taking what you want, when you want, with the first 25% tax free.
So far, so good. But those freedoms also mean you have to manage that money, making choices so that it lasts as long as you need it and you take it tax-efficiently.
One consequence of these still relatively-new pension freedoms that many people don’t know much about is that taking your savings can affect any Government benefits you get if they are means-tested against your income.
Pension freedoms and means-tested benefitsWhen it comes to taking pension savings, people “should not overlook the implications for their tax credit awards, benefits and overall household income,” says revenue benefits.
If you get a means-tested benefit such as jobseeker’s allowance, housing benefit, council tax credits, tax credits or pension credit, your pension income, along with any other sources of income such as rent or savings interest, can reduce what you are entitled to.
Any lump sums or income from your pension that take you over a certain limit could even see you risk losing all State support such as housing benefit, for example. It’s an important issue given that more than one million people age 65 or over get some help with their rent, says thisismoney.co.uk.
According to MoneySavingsExpert.com: “If you get a lump sum, then this may count towards your savings total – if you’ve over £6,000 of savings it can reduce your benefit, and over £16,000 it can stop it.”
So you could end up giving up your rental support unintentionally.
Child benefit could be affectedIf you get child benefit, or are a grandparent with guardianship of grandchildren which means you’re entitled to child benefit, you’ll see that benefit cut as soon as your income reaches £50,000. You can find out more about this here.
All this highlights the need to carefully consider what you take out of your pension savings. After all, they need to last you a lifetime.
There’s a lot to consider and you may want to contact Citizens Advice or the Money Advice Service to discuss your circumstances or find out more details if this affects someone you know.
The information in this blog or any response to comments should not be regarded as financial advice. A personal pension is an investment and its value can go up or down and may be worth less than you paid in. Laws and tax rules may change in the future.
The information here is based on our understanding in November 2015. Your personal circumstances also have an impact on tax treatment.