Will accessing my pension affect my benefits?


Most benefits are means-tested, which takes into consideration your income and your capital i.e. savings. Drawing down from your pension is considered to be income and taking a lump-sum to add to your savings is considered capital, therefore, your pension may well affect the amount of benefit you could receive. We asked a money advisor to break it down for us.

How does withdrawing from your pension affect applying for benefits?

In order to receive state benefits that are means-tested, you must meet a set of eligibility criteria. These criteria quite often consider how much capital and income you have.

With regards to pensions:

  • Income includes any cash you regularly withdraw from your pension.
  • Capital includes one-off lump sums you take from your pension, regardless of whether you spend it immediately or save it.

Your pension will only impact your benefits if you are over 55, since that is the earliest you can access your pension.

If you are over the Pension Credit age, the money sat in your pension may be included when your overall capital is being assessed.

How does taking from your pension affect benefits you already receive?

If you’re already receiving means-tested income, you may want to consider how drawing down from your pension could further impact your income as this could result in the amount of benefit you are eligible to receive.

Means-tested benefits also tend to rely on the individual claimant updating their own details upon their circumstances changing.

For example, if you are out of work and receiving Universal Credit, you will need to inform the government should you start working again. In this case, any income from your new job will be included with any pension income you receive, which could impact the level of benefit you actually receive.

Means-tested and non-means-tested benefits

Means-tested benefits that can impact your pension include:

  • Universal Credit
  • Tax credits
  • Income Support
  • Employment & Support Allowance (ESA)
  • Jobseeker’s Allowance (JSA)
  • Council Tax Support
  • Pension Credit
  • Housing Benefit
  • Social Fund (Cold Weather Payment, Funeral Payment)

Benefits which are not means-tested will not be impacted by your pension.

Will my pension taking affect Universal Credit?

Universal Credit is a benefit for people either on low incomes, can’t work or are out of work.

It replaces the combined Child Tax Credit, Income Support, Housing Benefit, income-based Jobseeker’s Allowance (JSA), Support Allowance (ESA), income-related Employment and Working Tax Credit.

To get Universal Credit you must:

  • have less than £16k savings between your partner and you
  • receive a low income or not working
  • fall under the State Pension age

Your pension may influence your eligibility because:

  • any regular income you get from your pension is contributed to the income that is assessed
  • any bigger lump-sum amounts you drawdown may add to your savings, regardless of whether you spend it immediately or not

In example, if you withdrew out a lump sum of over £16k from your pension you would no longer be eligible to receive Universal Credit as this would push you over the eligible savings limit.

Will taking from my pension affect Child Benefit?

Child Benefit is a benefit designed to help parents with the costs of bringing up a child.

Any parent or guardian is able to claim Child Benefit. However, if either you or your partner’s individual income is above £50,000 you might have to pay a high income child benefit charge.

Your pension can influence whether you are taxed on the benefit because any income you get from your pension will contribute to the overall income that is assessed.

You can also opt to voluntarily stop receiving Child Benefit, if you so wish.

Will taking from my pension affect Pension Credit?

Pension Credit is a benefit for people who have retired and receive a low income. It can be claimed once you hit the State Pension age, and includes Savings Credit and Guarantee Credit.

To be able to receive Pension Credit you must have a single income below £173.75 or a joint-income with a partner below £265.20

Your pension may influence your eligibility because any regular income you are in receipt of from your pension will add to the income that is assessed

In addition to this, receiving Pension Credit can impact other means-tested benefits you can receive.