Salary sacrifice, Universal Credit and AVC

marycanary

I spoke recently to an ex-colleague who is in the LGPS about AVCs. This person told me that, because they are in receipt of Universal Credit, money paid through salary sacrifice into their AVC pot increases the amount of UC they receive. Consequently, they can build up an AVC pot at little or no cost. 

Is that true?

Thank you 
MC

The_Unready

I don't know the answer to that, but I really hope it isn't true!

michaels

marycanary said:

I spoke recently to an ex-colleague who is in the LGPS about AVCs. This person told me that, because they are in receipt of Universal Credit, money paid through salary sacrifice into their AVC pot increases the amount of UC they receive. Consequently, they can build up an AVC pot at little or no cost. 

Is that true?

Thank you 
MC

Certainly can for tax credits.  Need to watch out for NMW if using sal sac but below you can also make sipp contributions (doesn't have to be sal sac, any pension contributions count) - below the basic rate tax threshold where you then get 'tax relief' despite not having paid any tax - and along with the increased benefits it can cost only a few pence in the pound for the pension contributions.

Combine with an offset mortgage to give you some money to live off that is not counted as capital for UC, to be repaid using the TFLS, and it is a no brainer.

Grumpy_chap

marycanary said:

Is that true?

Pretty much.
SS pension is reduced salary and employer contributions 

marycanary

Seems like it is possible. I had heard of people using pension savings to reduce earnings to obtain Child Benefit but not of someone using benefits to increase pension savings. I suppose the income of someone on UC will be pretty low so the cost to the treasury won't be significant.

QrizB

marycanary said:

I suppose the income of someone on UC will be pretty low so the cost to the treasury won't be significant.

As a way to help the low-waged save towards their retirement and reduce the risk of them needing additional state benefits, it seems a fairly pragmatic approach.

michaels

QrizB said:

marycanary said:

I suppose the income of someone on UC will be pretty low so the cost to the treasury won't be significant.

As a way to help the low-waged save towards their retirement and reduce the risk of them needing additional state benefits, it seems a fairly pragmatic approach.

With an AA of 60k anyone earning up to that amount could put their entire income into a pension and earn UC based on having an income of zero (while still meeting the minimum hours qualification), saving £17k in income tax (plus NI if salary sac down to NMW) and potentially getting a similar amount of UC+child benefit.

WillowCat

It's not no cost, but yes the tapering of UC due to earnings is done after tax, national insurance and pension contributions are deducted.

Having found myself in a position where I have a partner too disabled to work I take full advantage of this situation and salary sacrifice down to minimum wage, and then put a further £800 per month in my employer's relief at source scheme.  This makes my earnings as far as UC is concerned just over my work allowance and so I get nearly as much UC as I would if I wasn't working at all.  

Any claimant that is subject to conditionality (i.e. work search or work preparation) would need to be careful not to reduce earnings so much that they were then told to increase their income.  As I'm a carer I don't have any earnings expectations and so am left alone.