When you have to stop working after acquiring a disability or receiving a diagnosis, this can have a knock-on effect on your finances later in life. Perhaps not the first thing on your mind, but how will leaving work affect your pension?
Taking the decision to leave work after acquiring a disability or receiving a diagnosis is a tough choice, and one that requires careful planning.
Often, short-term plans can take priority during the transition process, however one of the things that can have a huge impact later in life is your pension.
KNOW YOUR PENSION
Your pension is the money you receive when you reach retirement age and stop working.
While you’re working, your employer will enrol you in a workplace pension whereby you make monthly contributions, as does your employer, unless you opt out.
You are also eligible for a State Pension, which is money you receive weekly from the government when you reach State Pension age.
It’s normally something you have to claim, as opposed to receiving it automatically. To be eligible for a State Pension, you must have paid National Insurance (NI) for 10 years of your working life.
You can also invest in a private pension scheme, topping up your funds for your retirement. However, when you stop working, this can have a ripple effect on your pension and it’s important to know how to prepare for your retirement.
The Money and Pensions Service (MAPS) provides impartial support and financial advice, to ensure everyone is receiving the financial aid they’re entitled to.
“Regardless of whether someone has a money question, debt issue or pensions issue, we’re the place where everybody can come to get the support they need,” says Charlotte Jackson, head of pensions guidance.
“For someone who’s had to take early retirement because of disability, the type of diagnosis will influence when they can receive their pension. For some people, you’d be able to potentially access your pension from the date you’ve been told you’re unable to work from.”
The support you can receive, and the age at which you can access your pension after leaving work is unique to each individual situation, so it’s important to reach out to services such as MAPS, to find out exactly what you’re entitled to.
NATIONAL INSURANCE CREDITS
If you leave work due to disability or diagnosis, there are plenty of options to help you when you reach retirement age.
When you’re working, you pay National Insurance, which helps fund certain state benefits and the State Pension.
When you stop work, you also stop paying NI, which means your contributions towards the State Pension also end. This can mean you’re no longer eligible to receive your State Pension.
However, if you receive certain benefits, such as Universal Credit, or Disability Living Allowance, you automatically begin receiving credits and start to build up entitlement to a State Pension.
National Insurance Credits help fill in the gaps of your NI record, to make sure you qualify for the State Pension. Depending on the benefits you receive, you might get credits automatically, but it’s also worth checking you’re eligible, as in some cases you might have to apply.
If you have to leave work due to diagnosis or disability, you might be eligible to receive Pension Credit.
Pension Credit is an income-related benefit that offers people over State Pension age a weekly top-up, intended to give you more money during your retirement. If you have a disability, or are a carer, you might be entitled to a higher amount of Pension Credit.
“Pension Credit is a means-tested state benefit,” Charlotte explains. “So, when someone reaches their State Pension age, they’ll stop getting their other benefits – their in-work benefits – and start getting Pension Credit. You can claim Pension Credit regardless of if you’re still working or retired: as long as you’re over the State Pension age, you can claim it.”
If you’re successful in receiving Pension Credit, you may also qualify for other benefits, such as council tax reduction, warm homes discount, housing benefit, cold weather payments and free TV licenses for over-75s, so it’s definitely worth investigating if you qualify.
You can’t apply for Pension Credit until you reach State Pension age, however knowing the benefit is in place can be a relief, and ease worries about your pension in the future.
In the meantime, before accessing your pension, you can research which benefits you’re entitled to and start building up credits for the future, which will be incredibly helpful when the time comes.
“Online benefits calculators are a helpful way to make sure you’re getting everything you should be,” Charlotte advises. “You can also look into purchasing an enhanced annuity.”
An annuity is an income you can buy with your pension pot and will bring in a fixed amount of money for the rest of your life. If you have a life limiting illness or disability, you can purchase an enhanced annuity, to get a higher retirement income. All you need to do is provide the insurance company with your medical details.
“Leaving work is a really big decision,” Charlotte emphasises.
“Services like ours are there to provide support, to make sure people have one less worry, so they can understand what they’re entitled to and how they can afford to pay their bills. Don’t add another worry to your plate when you’re already dealing with more than you can manage.”
It can be daunting to think about how leaving employment permanently will affect your future, but there is advice at hand, to ensure you’re supported every step of the way.