Guidance

Pension freedoms and DWP benefits

Published 27 March 2015

© Crown copyright 2015

This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. To view this licence, visit nationalarchives.gov.uk/doc/open-government-licence/version/3 or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: psi@nationalarchives.gov.uk.

Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned.

This publication is available at https://www.gov.uk/government/publications/pension-freedoms-and-dwp-benefits/pension-freedoms-and-dwp-benefits

Defined contribution (DC) pensions build up an individual fund or ‘pot’ of pension savings. Since April 2015, people aged 55 years and over have more freedom and choice about how to access these pension savings.

If you have defined contribution pension savings and you are aged at least 55 years, you might choose to:

  • buy a guaranteed income (an annuity)
  • arrange ‘flexible drawdown’, where lump sums or regular payments can be drawn down
  • take the whole amount as a lump sum
  • take a number of lump sums out

There are rules about how your pension, and any money you take from it, will be treated in the calculation of your entitlement to the following income-related benefits:

  • Employment and Support Allowance (income-related)
  • Housing Benefit
  • Income Support
  • Jobseeker’s Allowance (income-based)
  • Pension Credit
  • Universal Credit

How your pension pot (or your partner’s pension pot) is treated depends on whether you or your partner have reached the qualifying age for Pension Credit.

Check your Pension Credit qualifying age

The way in which you use the new pension flexibilities could affect any future entitlement to benefits.

If you (or your partner) are under the qualifying age for Pension Credit

If you (or your partner) are under the qualifying age for Pension Credit, and you do not take any money from your pension pot, then it will not be taken into account when your benefit entitlement is worked out.

If you or your partner do take money from your pension pot, it will be treated as either income or capital, depending on, for example, how regularly you withdraw it.

It is your responsibility to tell the Department for Work and Pensions (DWP) – and your local council where appropriate – if you or your partner take any money from your pension pot.

If you (or your partner) are over the qualifying age for Pension Credit

Once you (or your partner) reach the qualifying age for Pension Credit, you are expected to use your pension or pensions to help support yourself.

If you choose not to buy an annuity after reaching the qualifying age for Pension Credit, an amount of ‘notional’ income will be taken into account when your benefit is worked out. ‘Notional’ income (in this case) is an amount equivalent to the income you would have received if you had bought an annuity.

If you take an income from your pension pot, the amount which will be taken into account when assessing your benefit will be the higher of the actual income or notional income. If you take a cash lump sum, this will be taken into account as capital.

It is your responsibility to tell DWP – and your local council where appropriate – if you or your partner take any money from your pension pot.

Deprivation rule

If you spend, transfer or give away any money that you take from your pension pot, DWP will consider whether you have deliberately deprived yourself of that money in order to secure (or increase) your entitlement to benefits.

If it’s decided that you have deliberately deprived yourself, you will be treated as still having that money and it will be taken into account as income or capital when your benefit entitlement is worked out.

Contributory benefits

Pension income over a certain level can affect your entitlement to contributory benefits.

For contribution-based Employment and Support Allowance, half your pension income over £85 per week will be taken into account.

For contribution-based Jobseeker’s Allowance, all your pension income over £50 per week will be taken into account.

If you do not take your pension, it will not be taken into account when your entitlement to contributory benefits is worked out. Any cash lump sum you take that is deemed to be capital will not affect entitlement to a contributory benefit.

More guidance

DWP staff can explain the rules around the treatment of income and capital, but this will not be a guarantee of your entitlement to benefits – each case is decided on its own individual circumstances. DWP staff use the detailed information in the Decision makers’ guide.

Pension Wise provides free and impartial government guidance to people aged 50 years and over with a defined contribution pension, to help them understand their options.

Visit Pension Wise through the MoneyHelper website to:

  • book a free Pension Wise appointment
  • find out how any pension money may affect your entitlement to benefits

This factsheet gives general information only and should not be treated as a complete and authoritative statement of the law.

Back to top