SIPP contributions while in receipt of Universal Credits

falsewidow

A curve ball was thrown at me a few years ago that left me struggling as a single father to two children on one wage, covid was the icing on the cake which led to myself going on UC as I was put on furlough and still am but I'll be returning to work in January on reduced hours and decided that I should really plan for the future and have increased my personal pension contribution from £25p/month to a more meaningful £150p/month.

I notified the DWP about the *change and they have told me that this won't affect the calculation for the amount of tax credits I receive. I anticipate my earnings to be £450-500p/month for 3-4 years until my eldest is 11 when I'll then be in a position to increase my hours to full-time. They have come back to me and said that the £292 earnings cut-off for the 63p taper will still apply whereas I'm of the impression that it should be set at £442 to include the 100% disregard for personal pension contributions. It took the DWP all morning and most of the afternoon to accept that the money already held in my SIPP should not be classed as savings as and can be disregarded.

*the DWP weren't previously aware of the £25 contribution but that was only paid in by me to cover the account fees.

Whose right?

Thank you.

NedS

UC is calculated on net earnings, so earnings after tax, NI and pension contributions have been deducted.

How are you making your pension contributions? Are they being deducted by your employer and show as pension deductions on your payslip? If so, then you don't need to do anything further, and your UC will be calculated based on your net take home pay which already reflects your contributions.

If, however, you are making additional pension contributions into your SIPP from your net take home pay, then you will need to notify UC of this and they should deduct your net contributions from your pay when calculating your UC award (good luck getting someone who understands this and will action it for you). You will need to notify them every month and most likely will be asked to provide evidence every month, like a pension statement showing the additional contributions. The easiest method, to avoid having to notify UC every month, is to increase your contributions into your employer's pension scheme whereby UC will be automatically notified and no action is required on your behalf.

You seem to misunderstand the £292 work allowance. If you had net earnings of £500/month, the first £292 would be ignored and the remaining £208 would reduce your UC by 63p in the pound, so reduce your UC by 0.63 x £208 = £131.04. If you were to make an extra £150/month pension contribution, and your net earnings fell from £500 to £350 as a result, the first £292 is still ignored, and now the remaining £58 reduces your UC at 63p in the pound, so 0.63 x £58 = £36.54. The work allowance of £292 will never change based on your pension contributions, but your net pay will reduce and less of it will fall outside of the £292 work allowance.

You are correct in that any assets held within a UK registered pension scheme may be disregarded for benefit purposes whilst you are below pension age.

WillowCat

Ned is absolutely correct in what he says.  I pay £400 into my SIPP each month, and email a copy of payslip and bank statement showing payment to my case manager each month, she then adjusts my take home pay on the UC statement.
You might need to consider how low your pay goes however.  As a single claimant, you need to bring home at least £343 per month in order to be in 'light touch' and avoid having mandatory work search commitments.  This is of course unless you are exempt for another reason, for example the age of your youngest child, caring responsibilities or disabilities.

falsewidow

Thank you NedS

I've opted out of the company pension (other than the free shares and life assurance) as the employer will only match my contribution unto 2% but I could in theory push the boat out and stick 3% seeming as I'm not paying any tax it hardly seems worth the <£10 my employer will contribute.

So in answer to your question yes it is a private pension and more specifically a low cost FTSE100 ETF tracker (accumulation). I've punched the details into a pension calculator and at an accrual rate of 4% together with my contribution of £150p/month this could potentially grow to £120K at the statutory minimum pension age point of 57. The risks are acceptable to me and I held throughout the crisis with little anxiety. 

The work allowance is fixed and the pension contribution is a separate item but the result is the same, thank you for clarifying this to me. The point is I have notified the DWP and they don't understand what is clearly in pension policy. 

falsewidow

WillowCat said:

Ned is absolutely correct in what he says.  I pay £400 into my SIPP each month, and email a copy of payslip and bank statement showing payment to my case manager each month, she then adjusts my take home pay on the UC statement.
You might need to consider how low your pay goes however.  As a single claimant, you need to bring home at least £343 per month in order to be in 'light touch' and avoid having mandatory work search commitments.  This is of course unless you are exempt for another reason, for example the age of your youngest child, caring responsibilities or disabilities.

Perfect and from the coal face, thank you. I have two young children and am in 'light touch' from what you say if I contribute too much that'll put me back on the mandatory work search commitment, eek! I'd better think this through.

Dazed_and_C0nfused

I've opted out of the company pension (other than the free shares and life assurance) as the employer will only match my contribution unto 2% 

I don't get this.  You are choosing to give up free money, quite possible paying more tax than you need to as a result and may also be getting less UC than you possibly could.

Grumpy_chap

It's always worth taking the company contributions, however low.  Then, have the SIPP in addition.

falsewidow

Grumpy_chap said:

It's always worth taking the company contributions, however low.  Then, have the SIPP in addition.

It was only last year that I signed up to the free shares. The long and short is that this was only going to be a temporary job lasting the summer so I didn't bother then 5 years on I'm still here and worked out I'd missed out on £1,000 worth of free shares. I pretend to work and they pretend to pay me, it isn't demanding so I'll keep going.
I don't fancy giving up a tenner of my money into a pension I have no control over. The reason I consolidated all four of my meagre work pensions into one pot is that it's easier to see where I'm at and manage after years of underperformance from the main providers, basically flatlining from 2001. In fact, it's grown rather well when I made that decision in 2012 and has quadrupled into a meaningful sum. That's a personal decision. I'll gain that £10s by making savings elsewhere.

NedS

falsewidow said:

Thank you NedS

The work allowance is fixed and the pension contribution is a separate item but the result is the same, thank you for clarifying this to me. The point is I have notified the DWP and they don't understand what is clearly in pension policy. 

You're welcome.

Regarding UC understanding and implementing this, it will totally depend on who you talk to as it is not something they commonly encounter. If you have to fight it, first by requesting a mandatory reconsideration, and subsequently by requesting an appeal through HM Courts and Tribunal Service, it could take up to a year. If this is the route you have to follow, I would suggest that whilst you are waiting for UC to get their act together, you opt back in to the employer scheme and make your extra contributions through that to reduce your salary, and make only very small/minimal monthly payments into your SIPP whilst you fight your case - it doesn't matter whether it's £1 or £150/month going into your SIPP, it's still treated the same. You will win, and you will get everything backdated, but you may not be able to afford to be out of pocket for 12 months whilst you wait. Then once it's sorted out, you can switch your extra payments to your SIPP over your employer's scheme if that is what you prefer.

UC aside, please also note replies above about losing out on your employers contributions by opting out of your employer's scheme.

WillowCat

NedS said:

Regarding UC understanding and implementing this, it will totally depend on who you talk to as it is not something they commonly encounter. If you have to fight it, first by requesting a mandatory reconsideration, and subsequently by requesting an appeal through HM Courts and Tribunal Service, it could take up to a year. 

I did hit a brick wall of 'computer says no'.  They declined to respond to my MR (they have no time limit to process them) and so I couldn't go to tribunal.  In the end contacting my MP was key to getting it resolved.  I later found out that internal guidance at DWP was incorrect (I think they call them 'spotlights') and stated that only contributions reported through RTI (Real Time Information, the employer to HMRC feed) would be taken into account.  I believe this guidance has now been corrected but as the document isn't in the public domain I can't confirm, and haven't done a FOI to see.  In all, it took six months to resolve.

WillowCat

This was the original document:  https://www.whatdotheyknow.com/request/536701/response/1283912/attach/html/2/FOI2018 12590 Spotlight on Earnings.pdf.html
including these gems "I don’t understand the amount of earnings used in the Universal Credit calculation? 

---

The net figure is used in the Universal Credit calculation. This is the gross (total) earnings 
minus allowable deductions, for example - tax, National Insurance, pension contributions paid 
at source through wages. "
"Is my private pension disregarded in the Universal Credit calculation?  
Private pensions are not disregarded for Universal Credit purposes if they are paid by a third 
party deduction. However, if they are taken at source (like the DWP pension) this is 
disregarded. This is also known as a pension contribution. "

This thread discusses the issue and also shows the changes that hopefully have now been made to the guidance: https://www.rightsnet.org.uk/forums/viewthread/14584/#69719
(I'm MareeH on there)