Pensioners on means-tested benefits need to watch they do not take too much cash under the new flexible access rules or they could lose their state-topped income.
Financial experts are concerned that anyone drawing down large sums from their pensions without specialist advice could breach savings limits that will lead to their benefits stopping.
Housing payments from the state are the main benefit at risk.
Department of Work and Pension rules say that if a claimant has more than £16,000 in savings, they cannot ask for an income top-up.
For those that break the limit, instead of releasing cash to spend how they like, they may end up subsidising their own rents.
Rich man, poor man
The flexible access pension rules are a conundrum for retirement savers near the £16,000 savings limit.
Drawing cash from their pension does not make them any richer, because they already had the money, but in the government’s eyes they are not so poor because the money locked in the pension becomes disposable cash.
For that reason, they then fail the means-test and have any benefits paid to them subject to the assessment stopped.
More than 1.2 million people over 65 receive housing benefit and many could fall foul of the means test.
Many more aged between 55 and 64 years old will be snared in the benefits net from April, when the new flexible access rules start.
The state pension is not means tested and remains unaffected at £113 a week.
Free advice
However, tops towards housing, pension shortfalls and council tax can add up to £45 a week to the state pension – but these are all means-tested payments at risk if more than £16,000 cash is drawn down in a tax year.
The government argues the new pension rules will make little difference to most pensioners who do not receive any means-tested benefits.
“Most of the people who receive the benefits are among the poorest pensioners and are unlikely to have any significant pension savings,” said the Department of Work and Pensions spokesman.
“Those under 65 wills see no change providing they do not access their pension cash to alter their financial circumstances.”
The spokesman also explained free financial advice would be available from Citizens Advice to help people work out their flexible access pension options. This advice would include questions about means-tested benefits.
