Universal Credit recipients get a boost in their pension payments

Universal Credit, to which all inherited benefits are permanently transferred, has some strict rules on eligibility, including the financial ceiling at which households will receive a lower rate or their benefits will be reduced altogether. As a result, many people are cautious when it comes to money decisions, for fear of accidentally jeopardizing their payments.

However, one area that beneficiaries should embrace wholeheartedly is retirement contributions. Although the eligibility set by the Department for Work and Pensions clearly states that applicants cannot have more than £16,000 in money, savings and investments, there are incentives to save into a pension.

The benefit uses measures of income after pension contributions have been taken out, according to the Daily Mail’s Steve Webb. This means that not only do pension contributions not affect someone’s eligibility, but it could see a person receiving more tax credits on the same salary.

Mr Webb said: “People who get tax credits – whether they’re working tax credits or universal credit – have an extra incentive to save for a pension. This means that the amount paid into the pension can be removed from income when the tax credits are worked out. .

“This usually means that someone saving into a pension will get more tax credits than someone on the same salary who doesn’t pay into a pension. Note that this applies equally to the old ‘working tax credits’ system and the new universal credit system. .

“Anyone on tax credits should ensure that the income used to set their benefit has had pension contributions removed.”

The Low Income Tax Reform Group explains that based on the current reduced rate of Universal Credit, a pension contribution of £100 over a year could lead to a £55 increase in the award a person receives. This also largely depends on the rate they currently receive and other circumstances that affect their benefits.

Those on other benefits, such as working tax credits, can also make pension contributions in this way. However, it should be noted that withdrawing money from a pension will count as income for the means-tested benefit which could have a negative impact on one’s payments.