Universal Credit warning as people could see payment cancelled over pension error

Universal Credit is designed to help individuals who are out of work or unable to work. However, it also provides vital support for those who are working but currently on a low income. The payment from the Department for Work and Pensions (DWP), has proven a lifeline for millions of people, particularly the uplift which was installed throughout the COVID-19 crisis over the last year and a half. However, as this temporary measure comes to an end, alongside other formal support such as the furlough scheme, Universal Credit recipients have been issued an urgent warning about how their payments could be impacted by certain actions.

The warning relates to the access of pension savings, which while providing financial security to individuals, could actually end up having the opposite effect when it comes to Universal Credit payments.

It was issued by Sir Steve Webb, former pensions minister and partner at Lane, Clark, Peacock who examined pensions freedoms rules first introduced in 2015.

Sir Steve highlighted that large number of people aged 55 and above who access their pension savings could end up inadvertently impacting the benefits they receive.

As many turn to their pension pot to provide them with an extra cash boost, they could lose out on Universal Credit at a time where a £20 cut is already looming.

READ MORE: National Insurance warning as Britons ‘unprepared’ for tax hikes

© Getty universal credit pension

Taking money out of one’s pension means a person ends up with a higher amount in savings, and under Universal Credit rules this could impact the amount of support a person can receive.

The terms laid out by the DWP mean those who have more than £16,000 in savings or capital will not be able to receive Universal Credit.

The DWP website states: “You may be able to get Universal Credit if you and your partner have £16,000 or less in savings between you.

“If you’re employed, how much Universal Credit you get will depend on your earnings. Your Universal Credit payment will reduce gradually as you earn more – for every £1 you earn your payment reduces by 63p.”

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Indeed, having just £6,000 in savings may mean a person ends up losing out on local authority support. This can come in the form of bill help such as council tax.

There is also another way pension freedoms rules could end up impacting Universal Credit payments, and Britons are being urged to pay attention.

The matter concerns individuals who purchase an annuity, a product which allows Britons to swap their pension savings for a regular and guaranteed income which lasts for the rest of their lives.

Rules, however, mean that each pound of an annuity may be deducted from a person’s benefit salary. This could also, therefore, have a knock on effect in terms of income.

© EXPRESS universal credit UK

A report undertaken by Lane Clark Peacock showed there are more than 1.5million people in the age group of 55 to 65 who are currently on benefits such as Universal Credit or Employment and Support Allowance (ESA).

If any of these individuals choose to take money from a pension, perhaps to boost their income during this challenging time, they could see their benefits impacted.

Sir Steve Webb, of LCP, said: “Giving people a choice about how and when to take their pension is a good thing, but there is no doubt that people need more help and advice about how to make the choice that is right for them.

“The benefits system, particularly for those of working age, was never designed with this situation in mind.

“With millions of people starting to build up modest pension pots through automatic enrolment, this issue is only going to get bigger.

“It is unreasonable to expect individual savers to understand all of this complexity.

“The industry and regulators need to work together to help people make the right choices.”

The DWP told Express.co.uk that claimants can seek advice from their work coach before accessing funds if they are unsure how it may affect their claim.

Express.co.uk has also contacted the Treasury for comment.

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