Personal Pension + Tax Credits : auto migration to UC

ader42

I'm thinking ahead here....

If a household was on Tax Credits (WTC and CTC), worked self-employed and had a personal pension. 
So £16k self-employment income and £4k tax credits.
Plus £12k personal pension (which is ignored for Tax Credits).

When they come to be automatically migrated to UC - would they get UC?
i.e. would the personal pension effectively continue to be ignored for UC?

https://www.gov.uk/government/news/managed-move-of-claimants-to-universal-credit-set-to-restart

"Everyone moving over from legacy benefits will have their entitlement to Universal Credit assessed against their current claims, with top up payments available for eligible claimants whose entitlement would have been reduced because of the change – ensuring they receive the same entitlement as on a legacy system. These will continue unless their circumstances alter."

calcotti

Pension income is not ignored for Tax Credits.
https://www.gov.uk/guidance/tax-credits-working-out-income#other-income

If you are referring to a pension pot, then that is ignored for UC.

ader42

Thanks, I was going by calculations done on entitled.co.uk and the system is so darn confusing lol

I think where I went wrong was forgetting that Tax Credits are based on previous years income not current years income.

So a calculation for the first year of taking personal pension payments would ignoring the pension but subsequent years they would not and that first year of pension payments (if DWP not told) would I suspect result in an overpayment to be paid back.

NedS

Do you mean you have £12k income from a personal pension or that you contribute £12k per year into a personal pension?

calcotti

ader42 said:

I think where I went wrong was forgetting that Tax Credits are based on previous years income not current years income.

Not necessarily. If the total income changed by more than £2500 Tax Credits would be based on the current year, not the previous year.

ader42

I was just trying to work out what would happen if I started taking £12k income from my personal pension whilst working self-employed and then got automatically migrated to UC seeing as national deadline for that is 2024.

Not sure it would be a good idea to take £12k that would be taxed at 20% if it also meant losing tax credits (or UC).

As I said, just thinking ahead - a while away anyway. I’m now thinking it will be best to just stick with the 25% tax free lump sum when the time comes if I’m going to still work.

Dazed_and_C0nfused

And taking any taxable income, even just a penny, from a defined contribution pension forever limits future contributions to a DC pension to a maximum of £4,000/year.

The only exception being if you bought an annuity.

NedS

Any pension income you take would be deducted pound for pound from any UC entitlement. The pension income would be deducted gross from UC, before income tax is deducted, making it an even less favourable option.

calcotti

NedS said:

The pension income would be deducted gross from UC, before income tax is deducted, 

Hadn’t realised that, I thought that net income is used (as it would be for PC) but I’ve not come across it.

Bit shocked if gross amount used - another hit on mixed age couples.

NedS

calcotti said:

NedS said:

The pension income would be deducted gross from UC, before income tax is deducted, 

Hadn’t realised that, I thought that net income is used (as it would be for PC) but I’ve not come across it.

Bit shocked if gross amount used - another hit on mixed age couples.

H5004:

All retirement pension income should be taken fully into account for UC; there are no comparable deductions for Income Tax and NI in UC

To be fair, you'd need to have pension (or combined) income above £12,570 to be paying tax, and with a pound for pound deduction, I doubt it affects that many people. It mainly 'affects' people who may pay emergency tax when a pension is first put into payment and later get it refunded. They are treated as having received the full gross amount upfront (or should be). In reality, I'm yet to see a case manager apply the regulations correctly!

peteuk

NedS said:

 It mainly 'affects' people who may pay emergency tax when a pension is first put into payment and later get it refunded. 

When I knew I was going to start receiving my pension, I contacted HMRC and had my pension tax free, which meant my wage was fully taxed at 20%. Because of this the was no emergency tax.  

You can also do a lot via their app.