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May 09

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

Reading Time: 8 mins

We had an email from a MoneyMagpie reader last week saying that he had a few years to go before the state pension kicked in but that his disabilities, and the fact that he’s on benefits, prevent him from earning money.

Understandably he asked what could he do to create enough of a nest egg to live on when he retires.

It’s a tricky question.

He’d spent his life doing jobs that didn’t include pension payments and hadn’t been able to put anything away himself. Now he is wondering what to do.

We asked some experts to give their view as to what he could do to help himself. See if it helps you too.

 

our reader’s problem

When we asked him for specifics about his situation he said:

“I have several disabilities that hold me back from working including osteoarthritis, 3 hernias and mental health issues that make holding a steady job impossible. The job centre has given up on me as I get a good enough income from disability benefits that I have had to fight hard to get and so taking any part time or full time employment if I could would mess them up and not be beneficial as the rates of pay are terrible. 
“Having worked enough long hours over 30 years in hospitality around the world on The QE2 cruise ship and luxury hotels in South Africa, Australia, Bermuda and The Cayman Islands for poor pay with no pensions and no savings etc. and no home of my own with only 8 years left ’till my official retirement date I would like to put some savings away regularly to make my income when I get my pension much better if that is possible at this late stage. 
“I would need to know for my motivation to keep saving over the next 8 years that it would truly be beneficial to put money away on some kind of pension or something and have some idea of the returns I would get from it. Seeing some examples etc. and to be able to follow it and see just how well it is growing and any government help etc. that would increase it and for it not to affect the income I would get from the government in retirement.
“I have now partner or kids, just me and I am 58 years old, soon to be 59 in June with my retirement date to be when I am 67 in 8 years time.
“I would be looking for something that would increase my income from 67 but would consider something that started later giving me benefits or sooner if anything available.
“I am at a loss where to get free help and advice and so hope you could from the information I have given you here.”

 

It’s a tough situation for him so we brought in three experts to give their view on how he can invest for his future.

 

What the experts say

Andrew Sykes, Noah’s Ark Centre, Halifax

Andrew SykesFirst of all we asked Andrew Sykes from the Noah’s Ark Centre in Halifax. This centre helps people with debt and benefits and is connected to the debt charity Community Money Advice.

This is what he says:

My advice comes in two parts. The 2nd part, saving for retirement, really needs input from an authorised financial advisor (which I no longer am) as it concerns regulated savings / pension products. So this isn’t something I can comment on. 
The first bit though I would give advice on. If Ritchard was a client of mine I would have a conversation with him about employment. I understand his frustration with the Jobcentre but personally I wouldn’t be looking at engaging with them. There is more to being employed than just the income it brings: people need people and people need purpose. Employment brings health benefits as well as financial ones. 
In Calderdale we have a couple of great 3rd sector employment projects that work intensively with clients to get them the help they need to break down barriers to employment. Perhaps something similar exists in the reader’s town? 
In regards a job affecting his benefits that may be the case but it might not. ‘Permitted’ work is allowed for people on sickness and disability benefits provided it is below a certain number of hours per week and a below a financial limit (around £100 per week). Money which might be very handy for the reader’s retirement goals. If he found a meaningful job which he loved there would also be benefits for his poor mental health. 

Sarah Pennells, Consumer Finance Specialist at Royal London

Sarah Pennells

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, financial advisor, citrus financial

David Braithwaite
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.

What to do if you need debt help

  • Firstly, contact one of the free debt advice agencies. We have a list of them here.
  • Also take a look at Turn2Us.org.uk which has a benefits calculator that you can use to see if there are any benefits you’re owed that you haven’t accessed yet.
  • Make sure you are signed up to our free weekly newsletters to that you can find out about the latest money-saving, money-making and freebie ideas.
  • Do remember that, as Andrew mentioned above, there are various ways you can make extra cash even if you’re on benefits. Check out our ideas for making money from home here, or selling your stuff here, or making money online, all of which have great ideas for making extra cash if you’re not too mobile.

WHAT DO YOU THINK?

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Ritchard Mckie
Ritchard Mckie
4 months ago

Thanks Money Magpie and all who answered my question. I will get the full pension as I have checked and have checked to see if I had any pensions before but they can’t find any even though I was supposed to have one with British Rail. I have done the pension that gives over £700 each year before but had to cash it in as having over £6000 in savings would have effected my benefits and I used the money to purchase an enclosed mobility scooter. Taking even a part time job would trigger a change of circumstances and I… Read more »

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