Universal credit and private pension contributions

huckster

Think Government should amend legislation to limit these pension contributions in regard to adjustment of earnings for benefit purposes. Current legislation allows people to take advantage, beyond what many would think is fair.

Spoonie_Turtle

huckster said:

Think Government should amend legislation to limit these pension contributions in regard to adjustment of earnings for benefit purposes. Current legislation allows people to take advantage, beyond what many would think is fair.

One consequence of it though is it does mean they almost certainly won't qualify for state help at pension age (which currently is about double what's available for working age people, or more if including passported benefits).  Unintended, yes, but that aspect at least is advantageous to the government.

RobinHill

huckster: I'm no economist but guessing a good percentage of UC claimants would likely to go on to claim SPA benefits. Government actuaries are pretty smart people. I suspect the feature was likely factored in.

HillStreetBlues

RobinHill said:

huckster: I'm no economist but guessing a good percentage of UC claimants would likely to go on to claim SPA benefits. Government actuaries are pretty smart people. I suspect the feature was likely factored in.

I disagree, it's not that paying into a pension is allowable, it's the amount that can be paid in that wasn't fully factored in.
Another example is salary sacrifice to drive a brand new car, can't see that was deliberately factored in.

RobinHill

HillStreetBlues: You lost me with the "brand new car" statement. How is that relevant to the topic? It has been government policy for decades to encourage pension savings. The statute entry allowing pension contributions to be subtracted for UC award calculations was entirely intentional.  

Grumpy_chap

RobinHill said:

HillStreetBlues: You lost me with the "brand new car" statement. How is that relevant to the topic? It has been government policy for decades to encourage pension savings. The statute entry allowing pension contributions to be subtracted for UC award calculations was entirely intentional.  

So, the SS car comment is because SS, whether for pension contributions or for an EV car, has the effect of reducing salary / take home pay.  Hence, increasing eligibility / entitlement for UC.

In the case of the SS EV car, there is a BIK liability to pay (extra income tax) but the rate is low and, AIUI, the BIK value is not considered in assessment of eligibility for UC.  (That comment about BIK is my understanding, I have not checked, I may be incorrect.)

I think there was someone upthread who mentioned SS pension contributions 80% of their salary.  

The extreme position could be an individual SS down to NMW (thus minimising income tax and NI liabilities plus maximising UC eligibility) but on top of that making SS pension contribution of £60k per year and SS, say, £500 per month, £6k per year for the EV.
This extreme could theoretically have an individual with a salary package of £91k per year who shows earned income around £25k (NMW) plus pension contributions £60k plus EV car £6k.  That avoids (legally) a lot of tax liability, avoids HICBIC (if applicable), and may open (or increase) entitlement to UC.
I acknowledge that policy has been to encourage pension savings but I also suspect that this extreme possibility was never intentional.
I suspect the actual occurrences of this extreme possibility existing are rare.

HillStreetBlues

RobinHill said:

HillStreetBlues: You lost me with the "brand new car" statement. How is that relevant to the topic? It has been government policy for decades to encourage pension savings. The statute entry allowing pension contributions to be subtracted for UC award calculations was entirely intentional.  

Yes they want to encourage pensions so to cut down the need for income related top up after SPA. But the current regs allows someone to pay so much into their pension pot they can get an income related top-up now via UC, basically the tax payers helping funding a very large private pension in retirement. I can't see that as intended.

As UC in based on actual income, if a person salary sacrifice some of their wages to have a new car, that sacrifice would decrease their income so increase their their UC amount. It's a consequence of how the rules are written, but I doubt it was intended to be used that way.

RobinHill

UC entitlement thresholds are fairly low. I can't imagine there's going to be many if any pulling that off. In addition I seem to recall that the UC directives specifically referred to pension contributions. Anything else they could take the view of deprivation. 

Grumpy_chap

RobinHill said:

UC entitlement thresholds are fairly low. I can't imagine there's going to be many if any pulling that off. In addition I seem to recall that the UC directives specifically referred to pension contributions. Anything else they could take the view of deprivation. 

I agree that the number of actual scenarios where SS is used to bring a high earner down to UC levels will be low.  I think I even acknowledged that in my post a little upthread.

I am not certain that SS for a car is deprivation under the rules (though I understand the logic of your comment that it would be deprivation of income).

The topic of SS for a car was discussed in the thread below, but I cannot see that it was able to reach a definite conclusion backed up my clear rules.  (I only skim-read it so may have missed something - the most precise comment seems to be from @yamor )
https://forums.moneysavingexpert.com/discussion/6500882/salary-sacrifice-and-universal-credit/p1

justwhat

Grumpy_chap said:

RobinHill said:

UC entitlement thresholds are fairly low. I can't imagine there's going to be many if any pulling that off. In addition I seem to recall that the UC directives specifically referred to pension contributions. Anything else they could take the view of deprivation. 

I agree that the number of actual scenarios where SS is used to bring a high earner down to UC levels will be low.  I think I even acknowledged that in my post a little upthread.

I am not certain that SS for a car is deprivation under the rules (though I understand the logic of your comment that it would be deprivation of income).

The topic of SS for a car was discussed in the thread below, but I cannot see that it was able to reach a definite conclusion backed up my clear rules.  (I only skim-read it so may have missed something - the most precise comment seems to be from @yamor )
https://forums.moneysavingexpert.com/discussion/6500882/salary-sacrifice-and-universal-credit/p1

I would think it is mostly people that are on managed migration that are able to bring there earnings down to UC levels.

You need money to live on and people will not want there  living standards to change too much. There may be a few on the benefits that are not means test that are able to contribute large sums to a pension.

There will be a small minority that are doing other obscure things that we would frown upon or would think not possible.

There will defo be people with 16k savings that they diminish and live on while depositing there pay into a pension thus eventually getting full or higher UC.