Is it possible to create a pause menu with a seperate level?

yeah, an actor can contain mesh components, camera components, light components, and an actor can spawn other actors or components at runtime. you could build a whole level out of a single actor, and many procedural games use an actor to spawn instanced static mesh components for walls and floors. but for rendering/draw call efficiency, i recommend combining many of your menu meshes into a single mesh component, sharing the same texture and material, if possible.