What happens to my PIP and ESA disability benefits at state pension age?
Pension scheme: What happens to the disability benefit when I reach state pension age next year?
I am 65 and will retire in January next year. However, I have not worked for over 10 years due to a disability.
I have a pension pot of £62,000. I currently receive many benefits, including Personal Independence Allowance, Employment and Support Allowance, Rent Allowance, and City Tax Exemption.
I have to make a decision about buying an annuity soon, but I’m not sure how it will affect one or more of my benefits.
I don’t know what kind of annuity to buy, or even if I should just keep my pot and withdraw money as and when I need to.
I have about £1,200 in savings, but this is quickly dwindling. I have some projects I want to finish; refurbishing an outdated camper, landscaping and possibly upgrading my car.
I’m considering taking some money out of my pot, but I’m afraid it will affect my benefits.
I am entitled to the full state pension. I would appreciate any pointers you can provide.
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Steve Webb replies: Let me first explain how the rules currently deal with your pension and other savings, and then how this will change when you reach retirement age.
The first thing to say is that your Self-Employed Property Benefit is based purely on the extra costs you incur due to a disability and the amount you get is not affected at all by your income or savings.
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The other benefits you receive – ESA, rent allowance and municipal tax assistance – are all paid on an income-related basis, which means that the amount you receive is based on your income and your savings.
Crucially, however, as long as you’re below retirement age, the value of your savings in a pension is ignored.
Everything changes when you reach state pension age next year.
The first is that your state pension kicks in, and it sounds like you’ll get the full amount of around £10,600 a year.
This is slightly above the standard pension discount, so if you had no disability, your state pension income would disqualify you for a pension discount.
However, if you get the ‘daily living’ portion of PIP, then the pension credit system is more generous and you could qualify if your state pension was your only income.
The next question is how the money in your pension pot is handled.
The way it works is they treat you as if you used the retirement pot to buy an annuity (a guaranteed income for life) – whether you did or not.
Your untouched pension pot generates a so-called ‘imputed income’ and this is added to the calculation of your state pension income.
Given the modest size of your pot, you may still be able to receive a small amount of pension reduction, provided that you qualify for the additional amount for disability.
In short, whether you keep your pension pot as an untapped fund that you occasionally call on, or whether you buy an annuity with it, does not make much difference to the benefit at first, because you will be treated as if you were took out an annuity.
If you reach retirement age, you will also need to be reassessed for rent and council tax assistance.
If you qualify for a ‘guarantee credit’ pension credit, this is a so-called ‘passport’ to certain other benefits, including covering your entire rent.
The situation with council tax is more complicated, as each English council has its own system. Hopefully, provided your local government takes your disability into account, you should also get a 100 percent discount on the council tax.
In relation to the small amount of money you have in a savings account, this would be disregarded for retirement credit purposes as savings under £10,000 are not counted.
In this answer I assume that you do not live with a partner.
In that case, people will only be eligible for a pension discount if both have reached retirement age, or if the partner who is older than the pensionable partner applies for rent allowance. The The website Gov.uk explains the rules for pension credit here.
Finally, ask what if you were to spend part of your pension or savings.
The important thing here is that you can’t just screw things up to qualify for more benefit.
If the Department of Work and Pensions or your council believes that you have deliberately “deprived” yourself of capital (for example, by overspending on a luxury item) in order to receive benefits, they may treat you as if you still had .
On the other hand, if you spend a portion of the money in a measured way on things like necessary home improvements or replacing a worn-out vehicle, you’re unlikely to break the rules.
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