Universal Credits and maximising private pension contributions.

UnkownUser

Hi all,
I am a single person, living in rented accomodation. No savings. I have a zero hour contract and when my health allows I go to work.
Is there a formula/ratio/limit to apply when looking to contribute an amount of my wages towards the company pension scheme that maximises contributions, but still allows for maximum Universal Credit payments each assessment period? 
I'm not very good with mathematics and formula, but I'm willing to try.
For instance/example, Ive earnt £500 at my job in one month, could I set my pension contribution to 10% and not get less financial assistance from UC ? 
Thanks in advance 🙂

sammyjammy

You cannot contribute anything that would take you under national minimum wage.

Spoonie_Turtle

sammyjammy said:

You cannot contribute anything that would take you under national minimum wage.

What's your basis for saying that?  I've not heard of that before.  I have however heard of people putting virtually all of their wage into a pension so they get pretty much a full UC payment, which is certainly not an intended loophole but one that people have used nonetheless.

sgthammer

Spoonie_Turtle said:

sammyjammy said:

You cannot contribute anything that would take you under national minimum wage.

What's your basis for saying that?  I've not heard of that before.  I have however heard of people putting virtually all of their wage into a pension so they get pretty much a full UC payment, which is certainly not an intended loophole but one that people have used nonetheless.

I'm not 100% on this, but I think it's a difference between salary sacrifice at source (which can't drop below NMW) and voluntary contributions from received earnings (which are a-ok). I could be wrong.

UnkownUser

sammyjammy said:

You cannot contribute anything that would take you under national minimum wage.

So if you earn the NMW, then you cannot contribute?? Doesn't sound right.. Where is your source for this answer please?

Yamor

You definitely can contribute more, and as stated above, it would only be a salary sacrifice scheme where you couldn't go below the NMW.

Regarding your original question, do you have LCW or LCWRA? I.e., do you have a 'work allowance' on your UC?

UnkownUser

Yamor said:

You definitely can contribute more, and as stated above, it would only be a salary sacrifice scheme where you couldn't go below the NMW.

Regarding your original question, do you have LCW or LCWRA? I.e., do you have a 'work allowance' on your UC?

Hi Yamor, I do not have LCW or LCWRA (at the present time) so I don't think I have a 'work allowance'. I cannot see that term used in my 'Payments' tab within the UC Portal. Being Zero contracted, and I do not earn a regular amount of money or commit to a certain amount hours due to health conditions, how would I know how much to contribute each month? Seems like a I'd have to speak to Payroll every month which would be somewhat of a task in my situation and I'm sure both the payroll dept & the pension scheme would prefer me to set a percentage of my earnings as a regular payment - OR - do I need to make it a regular amount regardless? 
Thanks in advance, and any replies are appreciated

Yamor

If you don't have a work allowance then every penny of your earnings will reduce your UC entitlement (although you will never be worse off, as they only reduce your UC by 55% of your earnings).

As such, there isn't a specific amount to contribute, it's just that the more you contribute, the less your UC will be reduced due to your earnings. The only way to not lose anything from your UC would be to put your entire wage into the pension.

In general, if you can afford it, it is a really good idea to make pension contributions. Besides for the increased UC, you will also get tax relief. For every £100 in your pension, you only have to contribute £80 (due to the tax relief), and of that £80, you will "recover" £44 from higher UC. So, £100 in your pension only costs you £36.

If your employer agrees to contribute as well (from what you say about your job, it doesn't sound like they will have to in your case, but they may agree to), then it'd be even better than the above.

UnkownUser

Sound GREAT - i'll have a chat with payroll and see what they'll do for me. Thank you 

Yamor

No problem!

Just to add for completeness, regarding the calculation in my previous post:

If your employer uses a pension scheme which gives relief using 'net pay arrangements', and you aren't a taxpayer, then initially you would have to pay the full £100, and you would recover £55 from your UC. However, HMRC will then refund you £20. As things stand, that would mean it only costs you £25. However, I expect the law to be changed* to include the £20 payment from HMRC as earnings for UC purposes, meaning you only keep £9, so the overall cost to you still comes out to £36.

*These payments from HMRC are a new thing, and the first payments are only expected to be made some time in 2026 (although they will be refunding for any pension contributions made since April 2024). This is presumably why the UC legislation hasn't been changed yet to include them as earnings.

NedS

Yamor said:

No problem!

Just to add for completeness, regarding the calculation in my previous post:

If your employer uses a pension scheme which gives relief using 'net pay arrangements', and you aren't a taxpayer, then initially you would have to pay the full £100, and you would recover £55 from your UC. However, HMRC will then refund you £20. As things stand, that would mean it only costs you £25. However, I expect the law to be changed* to include the £20 payment from HMRC as earnings for UC purposes, meaning you only keep £9, so the overall cost to you still comes out to £36.

*These payments from HMRC are a new thing, and the first payments are only expected to be made some time in 2026 (although they will be refunding for any pension contributions made since April 2024). This is presumably why the UC legislation hasn't been changed yet to include them as earnings.

Interesting.

If you aren't a tax payer, making additional payments into a SIPP may be an option where the tax relief is added automatically, relief at source. The down side is that contributing to a SIPP out of your take-home pay requires convincing UC that these contributions should be deducted from your earnings for UC purposes, easier said than done.