“I have a 40 year old daughter who is autistic (high scale) currently on PIP. I would like to give you a pension without affecting your benefits and save ISA. Can you advise me how this could be done to ensure that I have good financial support in the future?
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Andy Baker, Partner and Chartered Financial Planner at Equilibrium Financial Planning, responded: “First of all, it’s important to note that PIP (Personal Independence Payment) is not means-tested, so any pension savings that are do on behalf of your daughter should not affect this support, however, if your daughter receives any other support, there may be a means test and should be considered.
“You mention providing your daughter with ‘good financial support for the future,’ but it would be useful to explore exactly what this means to establish how much is required to do this and when it is needed.
“For example, do you need to provide a monthly income or a lump sum? Is access to a property required? These are important questions to consider as ISAs can be accessed at any time, but a pension cannot be accessed until age 58. .
“State pensions often make up a significant portion of retirement income once people are over 60. It may be worth exploring what rights her daughter has accrued so far and whether additional National Insurance contributions are required, as National Insurance contributions are not made on her behalf when she receives PIP.
“Anyone under 75 can fund a private pension, but the annual amount is restricted to £3,600 (including tax relief) if you don’t have any earned income. You could make this contribution as a method of financial support for the future. For example, a payment of £2,880 would receive £720 tax relief, even if your daughter pays no tax. This is a contribution that could be made every year, benefiting from £720 each time and increasing growth in the higher gross amount. Higher contributions could be made if your daughter is working and earning more than £3,600.
“Since pension money is not accessible until age 58, around 18 years from now, it is worth considering investing the money to generate better returns. Although it is important to note that any investment can, and will, go down as well as up. For amounts above this, you may want to consider funding an ISA or even placing money in a trust where a trustee could be appointed to provide support for your daughter. A vulnerable person’s trust receives special tax treatment and may contain assets, including property.
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Chartered Financial Planner Kay Ingram responded: “Personal Independence Payment (PIP) eligibility is not affected by the amount of savings a person has.
“PIP is paid to people aged 16 to 65 with two years or more of residence in the UK, who need long-term support with tasks of daily living and/or mobility due to a health condition.
“PIP is tax-free and paid in four-week installments. Starting at state retirement age, the assistance subsidy replaces the PIP.
Other benefits and income while claiming PIP
“You can work while receiving PIP and get other benefits, including the housing benefit and universal credit, if the eligibility criteria are met.
“These benefits do take into account a person’s savings, so while PIP payments are not affected by your savings, it is important to know what counts if other benefits are claimed.
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“Universal Credit ignores the first £6,000 of savings, but then applies a reduction in benefit once savings exceed this. When savings reach £16,000, Universal Credit is lost. But not all savings count.
“Savings held in a private pension are not taken into account until the claimant reaches state retirement age (currently 66, but likely to rise to 68 for your daughter). You can make third-party payments into a pension for her.
“People who don’t earn can save up to £2,880 per year in a pension and receive a taxpayer subsidy of 25 per cent of their savings, for a total of £3,600 per year saved. The pension provider collects the relief HMRC taxpayer and adds savings to it so that every €8 saved is worth €10 invested.
“A 40-year-old investing £300 a month could expect to achieve a fund of £72,000 after 20 years, rising to £110,640 after 30 years of savings, assuming moderate growth is achieved in a medium risk investment fund This is not guaranteed and the amount accumulated will depend on investment returns and fees charged and may vary.
“If your daughter is employed and earning £10,000 per year or more, she is eligible to join her employer’s self-enrollment pension plan and should automatically get an employer contribution to a private pension of three per cent of her annual earnings between £6,240 and £50,270 You need to save four per cent with a tax allowance on this of one per cent, so you would save a total of eight per cent, with half financed by your employer and the taxpayer.
“If you earn less than £10,000, enrollment in the employer’s plan is not automatic. Where earnings are £6,240 a year or more, the employee can apply to join the plan.
“Many employers offer more than the minimum contributions required under auto-enrollment pensions and paying extra to maximize the employer contribution and tax relief is sensible.
“The self-employed can save up to 100% of their benefits in a pension, capped at £40,000 a year, with tax relief on their savings.
“Private pensions can be accessed from the age of 55, which will increase to age 57 from April 2028. Up to 25 percent of the accumulated pension fund can be taken as a tax-free sum. Withdrawals above this amount are taxed as income, but can remain tax-free if your total taxable income is below the personal allowance (currently £12,570).
Other savings options
“If you’re only claiming PIP, other savings can be made without any PIP deduction, but keep in mind that your circumstances and eligibility for other benefits could change, so it may be prudent to keep short-term savings below £6,000.
“You can save up to £20,000 a year in an individual growth savings account free of income taxes. Non-ISA deposit accounts generally pay more interest than ISAs. With a tax-free savings allocation than £1,000 per year, if income is less than £50,270, the tax relief on Cash ISAs is less relevant.
“As your daughter is 40, she is too old to open a lifetime ISA available between the ages of 18 and 39. You can save up to £4,000 a year with 25 per cent added by HMRC, generating £5,000 a year. anus.
“If you’ve already opened one, your savings and taxpayer subsidy can continue until you’re 50. Savings grow tax-free and can be withdrawn tax-free if used to buy a first home or after age 60. Withdrawals for any other reason carry a 25 percent penalty and these savings will count, if other benefits are claimed.
“If you can contribute more to your daughter’s future financial security, it may be worth setting up a trust fund. You can appoint yourself and others as trustees to act on your behalf in the future. I would advise getting regulated financial advice from a member of the Society of Later Life Advisers (SOLLA) www.societyoflaterlifeadvisers.co.uk They have specialist knowledge of taxes, trusts and benefits that need to be considered Many offer a free, no obligation initial conversation You can check on the site SOLLA website to find an adviser near you. Free advice is available from Citizens Advice and www.moneyhelper.org.uk”.