To what extent do retirement savings and lump sum distributions affect benefits?

Savings have an impact on which benefits?

The following are the main means-tested benefits that are affected by both income and savings:

  • Universal Credit
  • Pension Benefit
  • Tax breaks (such as the Child Tax Credit and the Working Tax Credit)
  • Council Tax Assistance
  • Jobseeker's Allowance based on income
  • Employment and Support Allowance based on income
  • Financial Assistance
  • Housing Allowance

What are the limits on savings?

If you or your partner have less than £6,000 in savings, this will not affect your eligibility for these benefits.

If you and/or your partner have savings of £16,000 or more, you will not be eligible for Universal Credit.

If you and/or your partner have between £6,000 and £16,000 in savings or capital, the first £6,000 is ignored. The remainder is treated as if it provides you with a monthly income of £4. 35 for every £250 or portion of £250

  • You are receiving Universal Credit and have £7,000 in savings.
  • The first £6,000 is ignored.
  • The remaining £1,000 is calculated to give you a monthly income of £17. 40
  • £1,000 ÷ £250 = 4
  • 4 × £4 35 = £17 40
  • £17 Your monthly Universal Credit payment will be reduced by $40.

The £16,000 savings limit for tax credits does not exist. Instead, the amount of income (usually interest) you receive from your savings affects your tax credits.  

If you earn less than £300 from your savings, it will not affect your tax credits.   

If you earn more than £300 from your savings, that amount is deducted from your annual income and used to calculate how much tax credit you receive each year.  

More information about what counts as income for tax credits can be found in this guide on the website of the Low Income Tax Reform Group.

If you were receiving tax credits and now need to apply for Universal Credit due to a change in circumstances, such as job loss or change, family circumstances, or housing situation, and you have more than £16,000 in savings, you won't usually be eligible for Universal Credit.   

Any savings of £6,000 to £16,000 will reduce the amount of Universal Credit you will receive.  

However, if you're moving as part of managed migration (when nothing has changed in your life but the DWP asks you to switch to Universal Credit), any savings you have over £16,000 will be ignored for 12 months from the date you switch to Universal Credit. After a year, the normal rules apply.  

Before switching from tax credits to Universal Credit, seek advice from a benefits specialist to ensure you understand the implications. A Citizens Advice Help to Claim adviser will be able to advise you on the best course of action to take.  

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What effect do savings have on Council Tax Support?

Local governments administer Council Tax Support.

If you are of working age, the amount of savings you are permitted to have is determined by the rules of your local Council Tax Support scheme.

Your local council can provide you with more information about how the scheme operates in your area.

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If you receive Pension Credit and are eligible for Council Tax Support, your savings may affect how much you receive.

Because these benefits are being phased out, most people cannot file new claims for them.

Are you already claiming one of these benefits and have £6,000 or more in savings? Then you must notify the office that pays your benefit.

If you receive a windfall of £16,000 or more, your eligibility for these benefits may be jeopardized.

Pension Credit has no upper capital limit. If you have more than £10,000 in capital, you may be eligible for a reduced payment.

For every £500, or part of £500, of capital over £10,000, you will be treated as earning £1 per week. This is in addition to any other sources of income you may have, such as a pension.

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Savings are defined as any money that can be obtained relatively easily or financial products that can be sold. Among these are:

  • cash and money in bank or building society accounts, including no-interest current accounts
  • Premium Bonds and National Savings & Investments savings accounts
  • shares and stocks
  • property that is not your primary residence

Other properties you own but do not live in may be disregarded in certain circumstances.  

Other sources of savings and capital are ignored, including:

  • personal belongings, such as jewelry, furniture, or a car
  • the worth of any pre-paid funeral plans
  • policies on life insurance that have not been cashed in
  • Insurance claims that are used to replace or repair items will be ignored for six months.

The Department for Work and Pensions (DWP) determines which savings are included or excluded in a benefits claim. This can be determined by your personal circumstances.

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If you disagree with a benefit decision, you have the right to file an appeal.

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If you require assistance with your claim, please contact the Universal Credit helpline at:

Phone number: 0800 328 5644
0800 328 1344 (text)

Monday through Friday, 8 a.m. to 6 p.m. (closed on bank and public holidays) Calls are completely free.

If you live in Northern Ireland and want to use a helpline, call the Universal Credit Service Centre at 0800 012 1331 (for textphone dial 0800 012 1441), Monday through Friday, 10 a.m. to 4 p.m.

Because of the coronavirus outbreak, the helpline is currently extremely busy. So, if possible, you should use your online account. Log in to the GOV.UK website.

Will my redundancy or other lump-sum payment have any impact on my benefits?

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If you receive redundancy pay, it will be considered savings for any means-tested benefits you receive.

Remember that not all benefits are means tested. If you've lost your job, the main benefit you can claim is the new Jobseeker's Allowance, which is unaffected by your savings.

Compensation is considered savings for any means-tested benefits you receive. As soon as you receive your compensation payout, notify the office that pays your benefit.

When you seek compensation for an accident, injury, or disease that was not your fault, the organization from which you seek compensation must notify the Department for Work and Pensions (DWP).

If you've been receiving benefits as a result of the accident, the organization may be required to repay the amount you've received from the DWP. This could be deducted from your pay.

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You are not permitted to intentionally reduce your assets or savings in order to increase the amount of benefits you receive. The DWP refers to this as asset deprivation.

Asset deprivation can include:

  • distributing funds
  • transferring property ownership
  • acquiring possessions that are not subject to means testing, such as automobiles and jewelry

If you did any of these things before claiming benefits, the DWP will look at when you sold your savings and assets.

The DWP or your local council will examine the evidence to determine whether it was intentional.

If you couldn't have predicted needing benefits at the time, it might not count as asset deprivation.

You may be asked to provide documentation and receipts to support the date, as well as the reasons for selling savings or assets.

If it is determined that you purposefully withdrew your savings or assets, you will be treated as if you still had them. This is known as notional capital.

The fictitious capital will be added to your existing assets and savings. This will have an impact on the amount of benefits you receive.

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If your benefits were underpaid, you may be eligible for a back payment from the DWP.

This could imply a large lump sum payment. This may cause you to exceed the savings limits for means-tested benefits, such as:

  • Jobseeker's Allowance based on income
  • Employment and Support Allowance based on income
  • Income Assistance
  • The Universal Credit system
  • Housing Allowance
  • Pension Benefit

In some cases, this payment is not considered savings for a year and will not affect your income-related or means-tested benefits during that time.

However, where benefits have been underpaid due to an error, any payments in excess of £5,000 can be ignored for the duration of the claim or until the award expires. This could be due to an administrative error or a legal issue.

PIP mobility component and mental health

If you are unable or find it difficult to plan or travel because of mental health issues, you are eligible for the Personal Independence Payment (PIP) mobility component.

If you already receive PIP and believe you might benefit from this, there is no need for you to do anything. The DWP is reviewing all PIP claims and will contact you directly.

If you've already asked for your PIP award to be reviewed, just keep going.

Claims will be retroactive to November 28, 2016.

After transferring from older benefits, such as Incapacity Benefit, approximately 70,000 people have been underpaid Employment and Support Allowance.

The people most affected are the 20,000 people who were eligible for the "severe disability premium" but were not paid. People may owe up to £20,000 in some cases.

Backdated payments are now being made to affected customers by the DWP. Payments will be made back to the original claim date.

If you believe you are entitled to compensation, you do not need to do anything; the DWP will contact you.

If you receive means-tested benefits, any benefit arrears under £5,000 are treated as capital for 52 weeks from the date they are paid.

If your payment exceeds £5,000, it will be ignored for 52 weeks or until your benefit award expires, whichever comes first.  

These rules also apply if you switch to Universal Credit (UC) and have arrears from your previous income-related benefit entitlement.

Thank you for your input.

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