AET for Light Touch £1437 net or gross

kaMelo

michaels said:

alchemist777 said:

I spent some time reading through various threats here, then went to do my research. Work-related groups are based on RTI reports. The bottom line is that AET is based on gross income. Because 'net payment arrangement pensions are removed from salary before tax/NI, the RTI reports this 'new gross salary'' without the pension contributions. This can tip some people below the AET threshold. I challenged this in my journal and requested to discuss this over the phone rather than in person interview it; was agreed upon. I will let you know the outcome.
The £892 AET is set below the tax threshold anyway, so people should not be put into intense work search groups based on pension contributions.All they need to see is a payslip for clarification.('Net pay arrangement' pension isn't a salary sacrifice )

That is not quite correct, net pay is removed before tax but after NI.  No idea what information the RTI shares.

 Net pay deductions are reported via RTI, I can't remember the specific section number off the top of my head but it is there. What don't know is how much of the RTI feed is shared with DWP although from previous posts I dont think it's lack of data that's the problem, more a misinterpretation of the rules.

alchemist777

I think I figured out what the problem is. I've read through all the threads here on pension contributions /AET, and this is what it seems like.

The AET calculation is based on gross income.

The problem is the way the 'relievable pension is taken. People whose pension is relieved under the RAS(relieve at source) scheme are fine for calculation of AET, as their pension is taken out of the salary after tax is paid, so the RTI report shows gross wage and the pension deduction.DWP teams pick up this, as they can see pension deductions on RTI reports. So people who contribute to a Relief at Source (RAS) pension scheme may have an advantage over those in net pay arrangements regarding how their earnings are assessed for the Administrative Earnings Threshold (AET).

But this is different for 'net pension arrangements', where pension contributions are removed before tax. This reduces taxable pay, so the amount reported to HMRC (via RTI) is lower than the gross(full original) salary

 Key Differences:

1. Net Pay Arrangement:

   • Pension contributions are deducted before tax.
   • This reduces taxable pay, so the amount reported to HMRC (via RTI) is lower than the gross salary.
   • For example, if someone earns £935 and pays £50 into a pension, their taxable earnings reported to HMRC would be £885, potentially putting them below the AET.

2. Relief at Source (RAS):

   • Pension contributions are deducted after tax is calculated.
   • This means the gross taxable earnings remain unchanged, and only the take-home pay is reduced after the tax is calculated.
   • In this case, the individual’s full gross taxable salary (e.g., £935) is reported, even though part of it goes towards a pension. This keeps their earnings above the AET
     
     
     So, this difference creates unintended differences between workers in net pay arrangements and those in RAS schemes, even though both types of pensions have the same ultimate impact on the worker's take-home pay. The UC system it seems doesn’t account for this difference, as it focuses on taxable earnings rather than gross pay.
     
     
     I think this situation certainly needs to be raised with the DWP or even escalated to policymakers is this creates inequality between these groups. Policy needs to be fair across the board, rather than discriminate against those on NET pension arrangements. I think the 'fairness' issues should be raised.
     
      It seems those in 'RAS schemes' have an advantage since their taxable income doesn’t reflect their pension deductions, whilst workers in 'net pay arrangements' may appear to earn less,(because the pension is removed before tax, and RTI only reports to DWP the'' new gross income'', which already includes pension deduction) putting them at a disadvantage in Universal Credit assessments.

alchemist777

@michaels ''Ahh - but are net pay pension contributions 'relievable'?  Basically I think the tax is never charged rather than being taken and then returned as tax 'relief'.  For example with net pay, if pay goes lower than the personal allowance then there is no tax benefit to the pension contribution unlike personal sipp contributions from net pay where 'tax relief' is available on contributions made from personal allowance income even though no tax was actually paid.

net pension arrangements and RAS pension contributions are both relievable pension contributions.

the_pink_panther_2

alchemist777 said:

@michaels ''Ahh - but are net pay pension contributions 'relievable'?  Basically I think the tax is never charged rather than being taken and then returned as tax 'relief'.  For example with net pay, if pay goes lower than the personal allowance then there is no tax benefit to the pension contribution unlike personal sipp contributions from net pay where 'tax relief' is available on contributions made from personal allowance income even though no tax was actually paid.

net pension arrangements and RAS pension contributions are both relievable pension contributions.

I think that what's important here is that how they are calculating the work related groups isn't in accordance with the legislation.

michaels

alchemist777 said:

@michaels ''Ahh - but are net pay pension contributions 'relievable'?  Basically I think the tax is never charged rather than being taken and then returned as tax 'relief'.  For example with net pay, if pay goes lower than the personal allowance then there is no tax benefit to the pension contribution unlike personal sipp contributions from net pay where 'tax relief' is available on contributions made from personal allowance income even though no tax was actually paid.

net pension arrangements and RAS pension contributions are both relievable pension contributions.

Yes, I have already bene corrected but the issue seems to be that for RAS, UC see the gross amount of pay before the pension contribution and relief whereas for net pay they simply don't see the pre pension amount.

kaMelo

alchemist777 said:

@michaels ''Ahh - but are net pay pension contributions 'relievable'?  Basically I think the tax is never charged rather than being taken and then returned as tax 'relief'.  For example with net pay, if pay goes lower than the personal allowance then there is no tax benefit to the pension contribution unlike personal sipp contributions from net pay where 'tax relief' is available on contributions made from personal allowance income even though no tax was actually paid.

net pension arrangements and RAS pension contributions are both relievable pension contributions.

Not any more, this was changed for 2024-25 tax year.

the_pink_panther_2

If someone earned enough to pay NI contributions, and as NI contribution is calculated before tax and pension are deducted, then going by UC definition of 'gross taxable pay' isn't it AET net of both NI and pension? (for someone on a net pay pension arrangement?)  

alchemist777

@the_pink_panther_2

The AET for work-related activities is set as (18h X 11.44) x52/12=£892/month. They need to follow what the law says Work coaches even DMs often don't know/understand the law.

EXPLANATORY MEMORANDUM TO THE UNIVERSAL CREDIT (ADMINISTRATIVE EARNINGS THRESHOLD)
(AMENDMENT) REGULATIONS 2024

https://www.legislation.gov.uk/uksi/2024/529/pdfs/uksiem_20240529_en_001.pdf


4.1 This instrument increases the Administrative Earnings Threshold (AET) to a sum
equivalent to an individual claimant working 18 hours per week at National Living
Wage (NLW) and, additionally where a claim is made by a couple, a sum equivalent
to the couple working a combined total of 29 hours per week at NLW. This is
equivalent to £892 Per Calendar Month (PCM) for an individual and £1437 PCM
between a couple at 2024/2025 NLW rates. This instrument is effective from 6 May
2024.

5.17 Those claimants who have earnings at or above the AET level will be placed in the
Light Touch regime, and not have work search and availability requirements imposed
on them. Whilst claimants in the Light Touch group are expected to take action to
increase their work and earnings, a lighter touch approach is applied in accordance
with the Universal Credit Regulations 2013. These claimants will not be expected to
routinely attend Work Coach interviews. If claimants in the Light Touch group wish
to receive additional support, they have access to a voluntary offer that will provide
this support.

6. Legislative and Legal Context
How has the law changed?
6.1 Regulation 99 of the Universal Credit Regulations 2013 (S.I. 2013/376) sets out the
circumstances in which work search and work availability requirements may not be
imposed on Universal Credit claimants. Paragraph (6) of Regulation 99 provides that
Universal Credit requirements may not be imposed when a person has a certain level
of earnings, this is known as the Administrative Earnings Threshold (AET).

6.3 Section 22 of the Welfare Reform Act 2012 creates an obligation on the Secretary of
State to impose a work search requirement and a work availability requirement. The
provision also provides a legislative mechanism to create exemptions to that
obligation. The AET is an exemption to this obligation.

NedS

As others have stated above, the Workgroup decision is made automatically by the system based on the information received on the RTI feed. There is not normally any human interaction (although see below for an exception!) If the system is getting the decision wrong (i.e, not in accord with the legislation) then this is a coding error (bug) in the UC platform and needs to be fixed. Without access to the code, or lots of examples to try to confirm what the system is actually doing, it's hard to know exactly what is happening, and why.

Complaining at the jobcentre level will most likely simply result in the Work Coach taking manual intervention to override the system Workgroup based on the claimant's earnings. It may resolve the issue for the claimant, but does not address nor fix the wider issue.

Recently I saw another issue whereby a claimant transferred from Tax Credits to UC under managed migration and received Transitional Protection because they had capital exceeding £16k. They pay most of their salary into a SIPP (Relief at Source) each month bringing their gross taxable earnings well under the AET. The mechanism by which DWP adjust the earnings for SIPP pension contributions is to manually update the RTI feed (exactly what they update I do not know but I suspect they simply reduce the overall earnings figure for calculating the UC award by the amount of the pension contribution, oblivious that this can have other consequences). For our claimant in question, this had the effect of bringing their earnings for UC under the AET, and because their earnings dropped below the AET for 3 months in a row, their Transitional Protection ended (see guidance below), and because their Transitional Protection ended, their claim was closed due to capital exceeding £16k - probably not the outcome the claimant was expecting!

https://www.gov.uk/guidance/transitional-protection-if-you-receive-a-migration-notice-letter#changes-that-end-transitional-protection

Changes that end transitional protection 

Significant changes to your circumstances will end your transitional protection. The following are considered as significant changes:

• a partner moving into your household
• a different partner moving into your household
• a partner leaving your household
• your earnings drop below an agreed amount for 3 months in a row
• your Universal Credit claim ends

Yamor

NedS said:

Recently I saw another issue whereby a claimant transferred from Tax Credits to UC under managed migration and received Transitional Protection because they had capital exceeding £16k. They pay most of their salary into a SIPP (Relief at Source) each month bringing their gross taxable earnings well under the AET. The mechanism by which DWP adjust the earnings for SIPP pension contributions is to manually update the RTI feed (exactly what they update I do not know but I suspect they simply reduce the overall earnings figure for calculating the UC award by the amount of the pension contribution, oblivious that this can have other consequences). For our claimant in question, this had the effect of bringing their earnings for UC under the AET, and because their earnings dropped below the AET for 3 months in a row, their Transitional Protection ended (see guidance below), and because their Transitional Protection ended, their claim was closed due to capital exceeding £16k - probably not the outcome the claimant was expecting!

Interesting case, thanks for sharing! What happened in the end with this?

For those interested in some more technical details about this whole issue, here are some links:

Complete list of RTI data items sent by HMRC to DWP:
https://www.whatdotheyknow.com/request/information_sharing_between_dwp/response/1654918/attach/3/Data Items from HMRC to DWP RTE.PDF.pdf

RTI data items actually used by the UC computer system (see para. 13):
https://ico.org.uk/media/action-weve-taken/decision-notices/2024/4030663/ic-292952-w8w6.pdf

Confirmation that only RAS pension deductions are left in the earnings figure for AET purposes, not NPA pension deductions:
https://www.whatdotheyknow.com/request/universal_credit_income_for_the/response/2734835/attach/3/Response FOI2024 56938.pdf

Current FOI request about the whole issue:
https://www.whatdotheyknow.com/request/earnings_information_taken_from#outgoing-1727066