Pension contributions: effect on state benefits
The overall cost of pension contributions may be lower than you think if you are in receipt of certain state benefits. This is because when calculating income for universal credit you are able to deduct 100% of pension contributions – resulting in a higher award. There may be interactions with other state benefits to be aware of.
Content on this page:
Overview
If you get a means-tested benefit like universal credit your pension contributions reduce the amount of income that is taken into account in assessing your award. This could mean a higher award of universal credit is made to you.
Universal credit
Universal credit’s taper rate of 55p in the pound means that a gross £100 pension contribution over the course of a year could result in a £55 increase in your UC award depending on your level of award and circumstances.
Carer’s allowance
We look at the relationship between pension contributions and carer’s allowance in this part of our website.
Child benefit
Child benefit is tax free, although if you claim child benefit and either you or your partner has adjusted net income of more than £60,000, the higher earner will be liable to pay the high income child benefit charge (HICBC).
The more pension contributions you make, the lower your adjusted net income, therefore you may be able to reduce the HICBC by making pension contributions.
Other benefits
Pension contributions may impact on other benefits. You should check the position carefully for whatever benefit you are claiming. The steps you need to take to make sure the authorities know about your pension contribution amounts might depend on whether you are in a net pay scheme or relief at source.
