Universal Credit and Pensions

Funkykiwi52

I put quite large amount into my pension via salary sacrifice. It is over 70% and brings down to just over minimum wage salary. (My husband does a large chunk too but not quite as extreme)

We have done this for 3 years as we are early 40s, had no pension and I have a number of health issues which means I can't see myself working for more than 5 more years as it is a struggle even now so would rather have something for retirement even if it isn't much.

This has always worked for us as we limit our spending but with increased childcare and much higher mortgage rate we are getting into debt.

A work colleagues suggested I look at universal credit and when I use the calculator I would get enough to cover the bills but I wonder if this is allowed or whether universal credit will reject the claim and tell me to lower my pension.

On the outset I know it looks a ridiculous scenario but I know I only have 5 years to add to my pension and once I give up work my husband will also need to lower his pension contributions to cover the bills so we are trying to future proof.

Any idea if universal credit will tell us we put too much in pensions and therefore we are not eligible?

Brie

As I understand it UC don't look at work pensions at all. They are concerned about income and savings that are accessible. At your age you can't access your pensions and I wouldn't expect them to think you should do so before the scheme's normal retirement date. But in looking at your pension they may decide you are setting aside too much if that's what actually qualifies you for UC. And as I understand it they will look at the household income, not just yours.

I wonder though if you have a number of health issues whether you would get PIP now. This is not income related and while you are still able to work it may be a smaller amount and then might increase if/when the issues become worse.

Grumpy_chap

Remember, with the pension funds, if you are early 40's and expect to cease work in around 5 years, you will have a long pause between stopping work and able to draw the pension funds. You may be eligible for health-related benefits, some of which are not means tested.

You can make pension contributions via SS and this reduces your income so the eligibility for UC increases.

Do you have any savings or assets between the two of you? This is not just the obvious savings in a deposit account but also includes assets which some people sometimes overlook, for example premium bonds.

Are you both employed on regular PAYE, or do either of you work Sole-Trader or own Ltd Co?

Funkykiwi52

https://forums.moneysavingexpert.com/discussion/comment/81866773#Comment_81866773

I think that's my worry is that the pension contributions is what qualifies us for universal credit so not sure if they would reject it based on that (although I have proof I have made these contributions for years so not upping it to get universal credit if that makes sense)

We do actually claim PIP but that is a good shout, unfortunately the PIP just covers my physio, prescription and additional time off from work when things are particularly bad.

Not sure it is worth claiming UC if they will ask us to reduce pension

Funkykiwi52

https://forums.moneysavingexpert.com/discussion/comment/81866789#Comment_81866789

We are both employed and pay via PAYE and other than our house we live on and have a mortgage for we have no other assets.

Of what I have read in theory we could claim universal credit but if it weren't for our pension contributions we wouldn't be eligible so just don't know if they will tell us we need to lower pension contributions. But not sure I want to go through the whole process to be rejected as it also means us switching from our current tax free childcare to UC as you can't have both

born_again

What level of savings do you have between yourselves?

Grumpy_chap

I don't know the rules for tax free childcare.

What is the value of the tax free childcare?

What does an online calculator indicate you would receive as UC (with and without the pension contributions)? Use the calculator at Entitled To or one of the other comparable tools.

Then consider which of the two would lose the greatest amount

peteuk

UC will be a joint claim and if you qualify both your wages will reduce the amount you are entitled to by 55p per pound.

DWP will be advised of your take home pay, however depending on the way your employer reports your salary sacrifice depends on the amount reported, so you may need to report it separately.

Funkykiwi52

https://forums.moneysavingexpert.com/discussion/comment/81867098#Comment_81867098

None, we make enough to pay bills but not any savings if you don't include our pensions

Funkykiwi52

https://forums.moneysavingexpert.com/discussion/comment/81867117#Comment_81867117

The calculator says we would get 500 currently but if we didn't pay into our pensions then we are entitled to nothing

UC is much better for childcare wise as tax free is only 20% off but the risk is if we try to claim UC we have to stop using tax free childcare abd then could also get denied UC

NedS

Normally there is no limit to the amount of relievable pension contributions you can make when claiming UC (UC Reg 55(5)(a)), but the issue here is that you are using salary sacrifice so YOU are not making any pension contributions (your employer is on your behalf), but you are choosing to give up a portion of your salary and that may fall under Deprivation of Income regulations (UC Regs 60(1) and 60(2) so DWP may argue you have notional income to the value of that you have salary sacrificed.

https://www.legislation.gov.uk/uksi/2013/376/

If you ended your salary sacrifice arrangements, and instead opted to receive that salary and then contributed it into a pension scheme as an employee contribution (either workplace pension scheme or private SIPP), you would still receive the tax relief and be able to claim UC under Regulation 55(5)(a), but you would lose out of the reduction of NI that you currently get through salary sacrifice.