Tax Credits to Universal Credit - moving excess savings to a pension fund?

peteuk

Whilst not against the rules, having 16K in savings and claiming tax credit does seem a little odd,  and with the transition to UC people like yourself and those with second houses etc will find their no long entitled on paper to government assistance.

However, the risk is as follows
Move he savings to a pension pot and have the DM say yes or no on the UC claim.  If no you may have just locked your savings into something you cant touch until later.
Leave it were it is and know you’ll not get UC, until you’re below the £16K.

No you have any debt or a mortgage as this is may be discounted as deprivation of funds,

SamMoneySaver

May i ask, if you was awarded pip this year which was backdated and you get get severe disability premium on top.

Does that count towards your capital or do you deduct that?

Also if your a couple, does the other half bank accounts equate to the total?

I dnt have any shares etc but how does uc know you have shares? 

kaMelo

SamMoneySaver said:

May i ask, if you was awarded pip this year which was backdated and you get get severe disability premium on top.

Does that count towards your capital or do you deduct that?

Also if your a couple, does the other half bank accounts equate to the total?

I dnt have any shares etc but how does uc know you have shares? 

PIP is not means tested so your capital levels don't matter if this is the only benefit you qualify for.
If however you're also claiming a means tested benefit like UC then, if you're a couple, you will claim as a couple and any savings either of you have are capital. 
It's always the claimants responsibility to notify UC of their circumstances including all savings and investments.

Spoonie_Turtle

SamMoneySaver said:

May i ask, if you was awarded pip this year which was backdated and you get get severe disability premium on top.

Does that count towards your capital or do you deduct that?

Also if your a couple, does the other half bank accounts equate to the total?

I dnt have any shares etc but how does uc know you have shares? 

PIP and other benefit backpay is disregarded for a year (I guess your SDP was also backpaid to the date of the PIP award?).  Would need to double-check on the finer details if the backpayment came before your UC claim starts though, whether it's still a year from the date of receipt or a year from the start of the UC claim.

(But with managed migration there is a 12-month disregard of any savings over £16,000 that would normally exclude someone from claiming.)

In a couple, both of their savings and capital together count on the claim.

DWP does data matching with various organisations and if someone has knowingly failed to declare capital they'll be penalised when DWP find out.  Anyone not declaring something they should is committing fraud, regardless of when they're found out.

Grumpy_chap

WildLifer said:

Thanks Newcad.
It looks to be too risky a move. If I shift some savings to a pension fund AND they treat it as Deprivation then I'm stuffed: No U.C. Less savings and a pension I can't touch till Im 50!
Thanks again all.

I am not convinced that this thread has got to a final answer about the pension contributions and whether they would be DoA.

It may depend on how the pension contributions are made.  There was a recent thread where the subject discussed pension contributions via Salary Sacrifice and this not impact UC:
https://forums.moneysavingexpert.com/discussion/6471425/salary-sacrifice-universal-credit-and-avc#latest

If that is available to the OP, they could reduce their income, spend the savings on daily expenses, the final outcome is the same.

I don't want to say too much as the rules around pensions and benefits are complex.  There are others that know far better than me and there have been previous threads on the subject that give far more specific details (complete with links to the rules) than this thread has reached.


It also seems worth understanding the rationale behind the 12-month disregard for savings over £6k for individuals migrating from legacy to UC.
What is this period for?
How is the individual meant to treat the savings in the 12-month disregard period?
If the individual is not permitted to spend (or invest) the savings then the only outcome of the 12-months would be to delay what would happen today if there was no disregard.

Newcad

Grumpy_chap said:
It also seems worth understanding the rationale behind the 12-month disregard for savings over £6k for individuals migrating from legacy to UC.
What is this period for?
How is the individual meant to treat the savings in the 12-month disregard period?
If the individual is not permitted to spend (or invest) the savings then the only outcome of the 12-months would be to delay what would happen today if there was no disregard.

That sounds about right.

By disregarding the savings/capital for 12 months they can't be accused of suddenly cutting off peoples benefits, instead they can say "Well, we gave you 12 months warning that it would end and you would then be treated the same as everyone else, so you have had 12 months to prepare for it".

As to spending it within those 12 months I have seen no special rules about that, so you'd still have to be careful of deprivation.
Deprivation is always a tricky area because it can be quite subjective.
The question is:  Have you spent/used/disposed of the money in ways that you didn't have to spend it, have you done that in order to increase what state benefits you can get?

Of course it's your money and you can spend it however you like, but you have to be aware that when you are on benefits any spending of savings may affect what benefits you can claim.

You are allowed to spend it on things that are reasonable without it being classed as deprivation.
eg. If you need a new car then buying a reasonable one is OK, but did you need to buy that new car and give your previous one to a relative, the old one was obviously still working? If you did need a new car then did it need to be a Jaguar/Ferrari? An exaggerated example but you get the point.
A family holiday would probably be reasonable, a round the world cruise probably not.
Paying off debts in full, including a mortgage, is allowable under UC rules, (it wasn't under old benefit rules, you could only pay the minimum that you had to).

Putting extra money into a pension pot, where it would be disregarded for benefits purposes, with the deliberate intention of increasing what you can claim in benefits, is not something that you need to do, and for that reason I for one would regard it as deliberate deprivation.
And that's against the rules - unless of course they change those rules.

Personally I anticipate that we are going to hear a lot more about deprivation in 12 months time as the migration disregards begin to run out for those who needed it to migrate to UC.

peteuk

I would also suggest if there is evidence of previous such payments eg every March 5K is put into a pension, then it would look less like deprivation.

peteuk

Grumpy_chap .

 It also seems worth understanding the rationale behind the 12-month disregard for savings over £6k for individuals migrating from legacy to UC.
What is this period for?
How is the individual meant to treat the savings in the 12-month disregard period?
If the individual is not permitted to spend (or invest) the savings then the only outcome of the 12-months would be to delay what would happen today if there was no disregard.

Currently there are no restrictions on savings with tax credits.  I can have thousands in the bank, have a minimum wage job and claim tax credits.  It’s allowed, many may say it’s not right, but it is what it is.

on migration from tax credits to universal credits many may find that following the Transitional Protection period they are not entitled to further assistance from the government.  This does not stop you from spending money, or investing it.  All it says is in X period of time unless your circumstances change you will not be able to claim.  What is to say someone isn’t made redundant half way through and then spends some of their savings on living.  BUT the spending of savings is likely to reviewed by a DM and may be classed as deprivation.

For instance…
Buying a new kitchen - if you can show something happened and it was needed, eg roof caved, rather than I had £16K and so spent £10k on a new kitchen, which was only refurbed 5 years ago, then the optics are different.

Grumpy_chap

Newcad said:

By disregarding the savings/capital for 12 months they can't be accused of suddenly cutting off peoples benefits, instead they can say "Well, we gave you 12 months warning that it would end and you would then be treated the same as everyone else, so you have had 12 months to prepare for it".

I tried to look into this and for any rules about the use of the disregarded capital in the transition period.
I found nothing specific but a couple of things I did find only added to my confusion.  It seems to be the case that the capital over £16k is disregarded but not between £6k and £16k - here is one article stating that (there are others):
https://revenuebenefits.org.uk/universal-credit/guidance/existing-tax-credit-claimants/managed-migration/transitional-protection/#:~:text=The disregard only applies if,in connection with that claim.

Perhaps I am being totally ignorant, reading the articles wrongly, or just plain failing to understand.
It is my understanding that disregarding capital above £16k would be meaningless unless the transitional arrangements also disregard capital in the range £6k to £16k.  AIUI, UC is reduced on a sliding scale one capital exceeds £6k and that sliding scale reaches 100% reduction (i.e. zero UC) at £16k.  Disregarding only what is above £16k is pointless as, by that point, the individual had their benefits reduced to NIL anyway.
That's what the various online articles seem to suggest, but it does seem absurd so I can only conclude I am missing something obvious.

NedS

Grumpy_chap said:

WildLifer said:

Thanks Newcad.
It looks to be too risky a move. If I shift some savings to a pension fund AND they treat it as Deprivation then I'm stuffed: No U.C. Less savings and a pension I can't touch till Im 50!
Thanks again all.

I am not convinced that this thread has got to a final answer about the pension contributions and whether they would be DoA.

It may depend on how the pension contributions are made.  There was a recent thread where the subject discussed pension contributions via Salary Sacrifice and this not impact UC:
https://forums.moneysavingexpert.com/discussion/6471425/salary-sacrifice-universal-credit-and-avc#latest

There is certainly no issue in contributing to a pension to reduce income on UC - the law (Reg 55(5)(a)) specifically allows for that.

One could argue there is a difference between contributions from earnings and those from savings (capital). HMRC requires pension contributions to be covered by relevant earned income, so one cannot contribute more than you earn. As UC is a monthly benefit, it would make sense to make pension contributions monthly from earnings. H3205 states there can be no deprivation of income when paying into a pension, so we are fine and above board there.

So now we are left with the capital, as we have not paid it into a pension. We would need to spend the capital in order to live as we now have very low earned income having contributed most of it into our pension. Is this deprivation of Capital?

DWP may ask what we expect to live on if we pay all our income into a Pension? Answer: UC, topped up as required by savings if UC does not provide sufficient income. Also not relevant to the issue of making the actual contributions under Reg 55(5)(a) and H3205 - smacks of clutching at straws because they don't like their own legislation.

What if one lives on the credit card and pays off the monthly credit card bill from savings each month (as many people do) - paying off debt cannot be considered deprivation of capital, and credit card debt is no different. I cannot see anything in the legislation that specifically allows DWP to consider how that debt was incurred, only that paying off debt is not considered as deprivation. Is that unreasonable - no? What about if you purchased a £20k world cruise on the credit card, and used your capital to pay off that debt? Reasonable? - maybe not, but again within the confines of the specific regulation?

So reading the individual pieces of legislation, I do not find much that falls in DWP's favour. No doubt DWP would focus on the bigger picture of have you acted with the intent or purpose of claiming (more) UC, although I'm struggling to see what specific individual act would be against the legislation, other than the net overall effect is that you now have less capital and a bigger pension pot.

I grant that making large lump sum pension contributions from capital, even though covered by relevant earned income, are far more likely to be considered deprivation of capital under R(SB) 40/85, but where contributions are made monthly directly from income the case becomes far harder for DWP to make.

Ultimately, I suspect it would take a court case to decide, and the devil will be in the detail.