How can I invest if my disabilities and benefits prevent me from working?

Sarah Pennells, Consumer Finance Specialist at Royal London

Consumer finance specialist, and TV regular, Sarah Pennells from Royal London has given this advice:

Firstly, I’m sorry to read about your health issues, and that you’ve not had any access to a pension throughout your career. You say you have eight years until you receive your state pension, and there are some options available to you.

As a starting point, I’d suggest that you get a state pension forecast, if you haven’t already done this. This will tell you how much state pension entitlement you’ve already built up and what you are on track to get by way of a state pension at retirement. You can do this online at Check your State Pension forecast – GOV.UK (www.gov.uk). If you prefer, you can ring the Future Pension Centre on 0800 731 0175 and they will post your forecast to you.

The full state pension is currently £185.15 a week or £9,627.80 a year. Before I suggest ways of increasing your pension income in retirement, it’s important to understand what state benefits are available to support you in retirement. The main benefit is called Pension Credit and you can apply for this once you reach state pension age this if your income is less than £182.60 a week (a little less than the full state pension). However, you may be able to get Pension Credit if your income is higher, if you have a severe disability or you have to pay housing costs, such as a mortgage. The charity Turn2us (Turn2us.org.uk) has a useful and free to use benefits calculator which can tell you whether you are able to claim means-tested benefits (including Pension Credit).

In terms of building up some savings yourself, there are several options. For example, the rules let you pay up to £3,600 a year into a personal pension and you would get tax relief at the basic rate – even if you are not earning. Tax relief is a top-up from the government, so if you wanted to pay in the maximum of £3,600 a year, it would cost you £2,880 (based upon the basic rate of tax at 20%). The rest would come from the government in the form of tax relief.

You would be able to take 25% of the money you’ve saved in a pension as tax-free cash, although anything else you take out is taxable. Currently, the earliest you can take money out of a pension is 55, but that will rise to 57 in April 2028. However, you will not fall foul of that rule as you are already 58.

There’s lots of helpful information on the government-backed MoneyHelper website, including a pension calculator which will show you what you might get at retirement depending on how much you already have and are planning to save each month. You can find this at Pension calculator | Work out your retirement income | MoneyHelper.  MoneyHelper also operates a free pension guidance service, which you can access by phone or over the web. They can’t give you advice but can explain your options. You can contact them on 0800 011 3797.

This won’t be any comfort to you, but anyone who is a worker (including employees and those on zero-hours contracts) and who earns more than £10,000 a year from their job will be automatically put into their employer’s pension scheme if they’re aged between 22 and state pension age.

David Braithwaite is a seasoned financial advisor who regularly appears on TV and radio. His advice is similar to Sarah Pennells but he also gives hope of finding a lost pension…you never know! He says:

The first thing the reader should do is obtain a state pension forecast to confirm what he will get when he retires.  If he’s got 35 years contribution history (or credits) then he will get a Full State Pension. He can obtain a forecast either online or by completing a BR19 form. Visit the HMRC website for more information. He may also be able to increase his amount of state pension by either making back payments of NI contributions or delaying his state pension age.  He should also check to see that he isn’t missing out on any benefits he hasn’t claimed for by heading to entitledto.co.uk  

As he’s keen to save towards his retirement over the next eight years, a pension plan would allow him to pay in £2,880 net pa without tax, which the Government will top up with tax relief (even if you are a non-tax-payer!) which means your money becomes £3,600 gross pa and that is before any growth is taken into account. When he decides to take an income from the plan, he will be able to take 25% as a tax free amount – the residual (remaining 75%) will be taxable as income, but only if this income exceeds his personal allowance for the tax year (currently £12,570). If it is over his personal allowance, he could then look to take the excess amount over two tax years. He would need to check how taking the income would impact his position regarding his state benefits. It is worth noting that your state pension, although paid gross with no tax taken, will mean that any other income from pensions etc will be added onto it, which may result in the personal allowance being exceeded.  Have a look at useful articles here to start with.  

The growth on the amount invested in his pension plan would depend on the amount of risk he is prepared to take, and therefore the volatility he would be willing to accept. He has a reasonable period of time to invest, but he may want to consider reducing the risk as he gets closer to taking the benefits. 

One last point. He states he has no pensions to date – but he might have somewhere, it’s always worth checking using the free Government pensions tracing service.  The biggest reason people ‘lose’ pensions is because they can be the last organisation, we think to tell of our address changes . This might be especially true in this case as he spent time travelling all round the world. Head to https://www.gov.uk/find-pension-contact-details to start this process.