Retirement savers could unwittingly cut off their entitlement to certain benefits and other financial aid by freeing up cash from their retirement pots, experts warn.
More people could feel pressured to unlock their pensions in the coming months – and as part of the pension freedom, people aged 55 and over have flexibility when it comes to withdrawing money.
However, if someone chooses to receive a lump sum or a steady income from their pension, it could potentially affect their eligibility for means-tested benefits such as universal credit, retirement credit or, in some cases, community help with council tax billing. Researchers said.
With an upcoming cut in universal loan payments and the end of the vacation program, more people could turn to their retirement for additional financial assistance, said consultants LCP (Lane Clark & Peacock) and tech company EngageSmarter.
They said that when people of legal retirement age take money from a pension pot, it can affect their entitlement to benefits in two ways.
If they end up making more savings, it could have an impact on the performance evaluation.
People with more than £ 16,000 in capital will be excluded from universal credit, it said.
And if they buy a regular income with their pension through an old-age pension, this income could be deducted from their benefit income.
Those behind the study said a new website tool – www.pensions-and-benefits.uk – has been introduced to allow savers to review how they might be affected.
Researchers said that of working age alone, well over 1.5 million people aged 55 to 65 are receiving means-related benefits such as Universal Credit or Employment Support Allowance across the UK.
There is a real risk that members might unknowingly think that they will improve their financial situation by drawing on their pension but end up doing themselves worse off, they said.
Sir Steve Webb, a former pension secretary who is now a partner at LCP, said, “As millions of people begin to build modest pension pots through automatic enrollment, the problem is only getting worse.”
EngageSmarter’s Peter Robertson said, “We hope our calculator will correct the situation, although ultimately this is a problem that the industry as a whole needs to systematically resolve.”
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