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How can benefits be used in pension planning

Benefits can help you to boost your pension pots and make sure that they last for longer. In this article we will look at the benefits that can help you to build up your pensions and reduce the money you take out from them.

Benefit entitlement when making pension contributions

Universal Credit is a benefit many working people are entitled to top up their income. The amount you can get depends on many things, including whether you have a partner, your number of dependents and housing costs. Then, the benefit amount is reduced by 63p for every £1 in your take-home income.

The great news is that for Universal Credit all your pension contributions are disregarded in the take-home income calculation. For example, if your monthly take-home income is £600 and you are contributing £100 to your pension, your reduction in Universal Credits is £275 instead of £330. In order words, for each £100 in pension contributions, you earn an additional £55 in Universal Credits. This gives people who are claiming Universal Credit a strong incentive to make pension contributions, if possible, as opposed to taking everything as income if working.

Another factor with pension savings, as opposed to other types of savings, is that your pension pot does not count towards the overall savings’ maximum threshold when calculating benefit entitlements. Therefore, putting aside money into a pension pot will mean that any pots built-up do not affect your benefit entitlements.

Benefits after State Pension Age

Universal Credit ceases once you (and your partner) reach State Pension Age. The reasoning is that the full State Pension should provide people with a minimum level of income. However, not everyone will receive a full State Pension, if they do not have enough qualifying national insurance contributions, or have meaningful private pensions.

The main benefits that are possible to claim after State Pension Age are Pension Credit and Housing Benefits. Similarly to Universal Credits, the income you get from State Pension and private pensions reduce the amount of benefits you can receive, therefore, an option could be to defer your pension withdrawals and substitute that income with Pension Credit and Housing Benefits.

Another advantage of receiving Pension Credits is that you can be entitled to additional benefits such as Warm Home Discount Scheme, Winter Fuel Payment or free NHS prescriptions.

Understanding benefit entitlements and claiming them

The examples above are intended as instances where you may be entitled to benefits to help with saving for a pension or topping up your income in retirement. However, as ever, it is more complicated than this and the entitlement will vary from person to person depending on your particular circumstances.

You can use our benefits calculator to get a free and impartial assessment of all the benefits and grants you are able to claim.