Means-tested benefits are financial support from the government that you only get if your income and savings fall below a certain level. Your and your partner’s financial circumstances are evaluated to see what means you have to support yourselves, and to help determine how much financial support you’re entitled to.

Means-tested benefits are based on your income and savings. If you take money from your pension, it could affect how much you're entitled to receive. The benefits below may take your pension income or pension withdrawals into account when assessing your eligibility.

*This is a legacy benefit that has now largely been replaced by Universal Credit

Non-means-tested benefits are generally based on your circumstances rather than your income or savings. In most cases, taking money from your pension won't affect your entitlement to these benefits.

**Although the New Style ESA isn’t means tested, please note that if an individual receives an occupational or personal pension that pays more than £85 per week, the New Style ESA payment is reduced by half of the amount over the £85 limit.

Withdrawals from your pension savings may impact your entitlement to means-tested benefits.

When assessing your entitlement to means-tested benefits, the Department for Work and Pensions (DWP) or your local authority will look at factors such as your income, savings, investments and household circumstances. Pension income and pension withdrawals may be included in this assessment, which could affect the amount of benefit you receive.

How you take money from your pension can affect the benefits you’re entitled to. Here are some key things to consider in terms of the different ways you can take your pension savings.

If you're receiving a regular pension or have bought an annuity, you're likely to be seen as able to support yourself, which can reduce or remove your eligibility for certain benefits.

As a general rule, every £1 of pension income reduces your benefit entitlement by £1.

For example, if your pension income is higher than your Universal Credit amount, you may lose that benefit entirely.

Income from drawdown products is treated differently from annuities or scheme pensions because it’s not guaranteed and can vary.

If you're over 55 (rising to 57 in 2028), have taken a Pension Commencement Lump Sum (tax-free cash), and aren’t taking an income, a ‘notional’ income can be used for benefit assessments. Notional income means you’re treated as having income even if you don’t actually receive it.

This can reduce means-tested benefits, just like with a regular pension, even though no income is actually being taken. This may push individuals to start drawing from their pension to make up for the loss of benefits.

The Pension Commencement Lump Sum (PCLS), which is the tax-free part of your pension, can affect means-tested benefits in two ways.

Withdrawing a large cash lump sum can easily push you over these limits, even if you still have significant pension savings remaining. Taking smaller cash lump sums, either gradually through drawdown or as Uncrystallised Funds Pension Lump Sums (UFPLS), may help reduce the effect on benefits, especially if your total capital stays within the relevant thresholds.

Other benefits like Social Care, Housing Benefit, or Council Tax Support may have different capital rules, so it's worth checking with your local council.

Many people in the UK are living in poverty at pension age because they’re unaware of the benefits available or believe getting a private pension means they are not entitled. This is not always the case.

How you withdraw money from your pension and the guidance you receive on planning for retirement can make a real difference to your quality of life in retirement. This can feel overwhelming at times, which makes it so important to talk your plans through with the support that's available.

For further information, please refer to Pension freedoms and DWP benefits guidance.

If you’re aged 50 or over, you can also get free and impartial guidance from Pension Wise. This can help you find out how any pension income may affect your entitlement to benefits and understand your options. You can book a free appointment online.

*This is a legacy benefit that has now largely been replaced by Universal Credit

**Although the New Style ESA isn’t means tested, please note that if an individual receives an occupational or personal pension that pays more than £85 per week, the New Style ESA payment is reduced by half of the amount over the £85 limit.

Taking money from your pension could affect any benefits you receive, so it's important to understand your options before making a decision.

Our retirement support team can explain the different ways to access your pension savings and help you take the next step with confidence.

Call us on 0330 174 0643.