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

Grumpy_chap

NedS said:

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.

Thank you @NedS - a really good and detailed reply that confirmed what I thought but was not certain on.

The OP could make pension contributions from salary and then spend the capital to make up the shortfall.  A roundabout way of contributing the capital to the pension.

What does not seem to have been confirmed - and I am sure I mentioned it upthread - is whether the OP has sufficient earned income to put the capital (via whatever route of reduced income and making up low income) into pension.

peteuk

The risk is the DM may say its deprivation and say no UC, so you’ve pumped money into a pension, got low paid jobs and no UC or reduced UC to live off. 

Others would question the morality of expecting UC to live off whilst pumping £10K into a pension.  The government dont want you to work out the future, they want the here and now. 

Apart from Tax credits in the early 2000s Ive never claimed or needed to claim benefits and currently struggling with no help, this is COL so I know I can get through it. 

Others may suggest you look at getting a better paid job, get yourself off UC 

Spoonie_Turtle

peteuk said:

Others would question the morality of expecting UC to live off whilst pumping £10K into a pension.  The government dont want you to work out the future, they want the here and now. 

What matters is what the law says, not the morality of it.  (And the government seems quite happy to let people put aside money for the future, with the legislation they've written, as the more people have for retirement, the less help they'll need/be entitled to after pension age.)

Grumpy_chap

peteuk said:

The risk is the DM may say its deprivation and say no UC,

The DM has to follow the rules.
The rules have been set out upthread.
If the OP follows those rules and then the DM acts differently, there is a route of appeal.

What would be worth the OP's time is to put their data into one of the on-line benefits calculators with zero savings and then re-do with different saving levels in steps up to the amount they have.  That will mean the OP will know what benefits they should receive under UC and also the impact of their savings on that entitlement.

Newcad

Grumpy_chap said:

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.

The answer there has to be no/but maybe, because everyones circumstances will be different.

The deductions for savings would not ordinarily reduce UC payments to nil on their own, but if/when combined with other deductions it can happen..

Even when the £16K limit entitlement disregard applies any savings/capital of between £6K and £16K will still reduce the amount of UC that can be paid.
That reduction is £4.35 for every £250, or part of £250, of savings above £6K.
eg. Savings of £6000.01 = £4.35 deducted, savings of £6250.01 = £ 8.70 deducted, and so on up to £15,750.01 and £174.00 deducted; with entitlement to UC normally ending at £16,000.

The transitional provisions for the entitlement disregard also state that any savings amounts higher than £16K are to be disregarded when calculating UC amounts, so the most that can be deducted for savings is that £174.00

The UC Standard Allowance for a single person over 25 is currently £368.74 and so deducting £174.00 would still leave £194.74 of the Standard Allowance payable each month, plus any other UC Elements due.

It would then depend on if there are other deductions to take into account, and with a migration from (Working) Tax Credits you can expect there will be a deduction for wages income at the 55p taper rate.

It's deductions for savings over £6K combined with deductions for wages at a sufficent rate, and combined with any other deductions, that might then result in nil UC being payable.

(Edited to correct initial errors of detail, see discussion below).

Grumpy_chap

Thank you for clarifying and correcting my omissions, @Newcad

Yamor

Just a couple of corrections:

Technically, the rules allow for the £4.35 deductions to continue past the £16k mark(see r. 72(1) of the UC Regs). It is just that normally reaching £16,000.01 means you are no longer entitled at all to UC (under s. 5(1)(a) of the Welfare Reform Act 2012 with r. 18(1) of the UC Regs).
However, under the transitional protection rules, all capital over £16k is ignored for all UC purposes. This therefore helps for both the capital limit (under s. 5(1)(a) of the WRA 2012), and also for the £4.35 assumed income from each £250 (under r. 72(1) of the UC Regs).

The maximum deduction (for capital of £15,750.01 to £16,000) is actually 40*£4.35=£174/month.

Although this deduction would be applied in migration cases, the other part of the transitional protection (which protects the level of entitlement) should help here if it causes the amount of benefit to be lower under UC than under tax credits.

Newcad

Thanks for the correction,
I should have double checked the regs but I was being lazy, as you say there is no upper limit stated.

I don't agree about the 40x though, because technically that wouldn't kick in until a penny over £16K which you could never normally reach and still be entitled to UC.

Checking, (this time), The Universal Credit (Transitional Provisions) Regulations 2014, reg51(2)(a), anything over £16K is to be disregarded when 'calculating the amount of an award of universal credit' UC, and so that calculation also never reaches £16K and a penny.

TBH though we are only talking about about another £4.35 on an already £169.35 deduction, it's not going to break the bank that has over £16K in it.

Yamor

Agreed that it won’t break the bank, but I still say you get to 40 lots of £4.35 once you hit £15,750.01!

£15,750 is (39*£250) over £6,000. So, the extra penny over £15,750 brings it up to 40.

Newcad

I'll concede, it's 39 increments of £4.35 on top of the original £4.35, giving 40x £4.35 overall.

(TBH I had used 40x myself at first and then for some reason had convinced myself that that was wrong - UC the benefit that is meant to simplify things).

Now I'll go back and edit that post - not to hide that I was wrong but so that it's correct for anyone reading it in future.