If I start receiving my NHS pension at age 60, will this affect Universal Credit benefits? STEVE WEBB replies

I will be turning 60 in a few months, and I am currently a carer living solely on Carer’s Allowance and Universal Credit, which I have been receiving for a few years now whilst caring for a family member.

I have a few pension funds and according to a letter I received from an NHS I could claim them from the age of 60.

Will I be deducted from my benefits if I do this?

The other pensions I have are also from the NHS, and one is from a local authority, for which the normal retirement age is 65 and 66.

Is it best to just leave them all until I get my state pension, which I believe I will do at 66, and take them all at the same time? You feel confused…

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Steve Webb replies: There is one set of benefit rules for people under state pension age and another for people who have reached retirement age.

People who have reached state pension age are generally expected to have access to the pensions they have accrued, or to be treated as such.

But for people, like you, who are not yet of retirement age, the rules are more complicated.

If we start with the simple case of modern ‘pot of money’ pensions, which are most common in the private sector today, the basic principle is that the money contained in such pensions is ignored when your benefit is calculated when claiming benefits at working age. .

In its official guidelines (Pension freedoms and DWP benefits) the DWP says:

‘If you (or your partner) are younger than the retirement age and you do not take money from your pension pot, this will not be taken into account when calculating your benefit entitlement.’

However, if you freely choose to withdraw money from this type of pension then this will count when you are assessed for Universal Credit.

The way it is treated depends on whether you take a regular amount or just an occasional lump sum.

The DWP says:

‘If you or your partner do withdraw money from your pension pot, it is seen as income or as assets, depending on, for example, how regularly you withdraw it.’

In relation to pensions you have accrued whilst working in the public sector (salary-related pensions or ‘defined benefit’ pensions), if you take such a pension it will count fully as ‘unearned income’ for Universal Credit purposes.

This means that every pound of occupational pension you receive means one pound less Universal Credit.

For those who receive a contributory Employment Support Allowance (ESA) instead, a more generous rule would apply.

The first £85 per week of any workplace pension is ignored and only 50 per cent of any pension above this level is taken into account.

Normally, one benefit of delaying (‘postponing’) your pension if you don’t have benefits is that you may be entitled to a higher amount if you do eventually receive it.

For example the Local government pension scheme website say:

‘If you take your pension after your Normal Retirement Age, this will be increased. The increase is based on the number of days from your Normal Retirement Age until the date on which you receive a pension.’

The exact rules on how deferred pensions are worked out can vary from scheme to scheme and even from ‘section’ to ‘section’ within one scheme. So it is important to check the rules before making a decision.

However, DWP has rules about ‘notional income’ from pensions and other sources.

This allows them to treat you as if you are receiving income, even if it is not actually withdrawn.

I looked at the details regulations relating to Universal Credit and section 74(1), entitled ‘Notional unearned income’, states:

“If unearned income were available to an individual when he claims it, the individual should be treated as if he possesses that unearned income.”

In the case of an occupational pension where you have reached normal retirement age, it appears that you are treated as if you were already drawing on it and your UC will be reduced anyway.

In short, the rules about when you are expected to receive different types of pension appear to be loosely based on the age at which you can reasonably be expected to receive them.

With regard to ‘pot of money’ pensions, the government has decided that you can only be expected to have used your pension pot when you reach retirement age.

But for company pensions that may have a lower ‘normal retirement age’, the age at which you become entitled to them (at the normal rate) seems to be decisive.

As for your healthcare allowance, you can receive it in addition to a company or personal pension, as the income from this is not counted as income. Gov.uk says:

‘Payments that do not count as income include: • money received from a company or private pension.’

The informal care allowance usually stops at state pension age.

Finally, I am afraid that based on your date of birth, your state pension age will be 67 instead of the 66 you assume.

My recent column explains the timetable for the move from 66 to 67 in more detail: I will be 66 in April 2026, so how long do I have to wait for my state pension?