Impact of Personal Pension Contributions on Universal Credit Allowances: Answers from Steve Webb
In the world of financial support, understanding the intricacies of Universal Credit (UC) and pension contributions is crucial for many individuals. Here's a breakdown of how these contributions affect UC calculations.
Firstly, it's important to note that when it comes to UC, both workplace and personal pension contributions play different roles. Workplace pension contributions are deductible from earnings before UC is calculated, ensuring that claimants are not unfairly penalised for saving for their retirement. On the other hand, personal pension contributions are not currently deducted in the calculation of UC eligibility or award amounts.
When assessing UC, the Department for Work and Pensions (DWP) considers the net amount of workplace pension contributions—the amount actually deducted from the claimant’s pay after tax relief—rather than the gross amount before tax relief. This approach maintains an accurate assessment of disposable income for UC claims.
In the case of personal pension contributions, the net figure (the amount actually paid in) should be used in the UC calculation, not the gross figure (the amount after HMRC top-up). For instance, if an individual makes a £80 personal pension contribution that is subsequently topped up to £100 by HMRC, the correct figure to use in the UC calculation is the £80.
The Universal Credit Regulations 2013 state that any relievable pension contributions made by an individual in a period should be deducted from their employment earnings. This rule applies to both workplace and personal pension contributions made directly by the individual.
However, it's worth noting that under UC, pension tax relief is not automatically added to the net pension contribution figure. Higher rate taxpayers can claim back additional tax relief on personal pension contributions.
The DWP has faced criticism for not accepting personal pension contributions as deductible, a problem that has been reported by many people. However, recent changes and clarifications suggest that the DWP is moving towards considering any pension contributions, not only those made through a workplace pension, for self-employed individuals.
Self-employed individuals declaring their income to the DWP through standard UC forms should provide information about their pension contributions alongside their self-employment profits. This ensures a fair and accurate assessment of their disposable income for UC purposes.
A recent benefit tribunal case has confirmed that for UC purposes, the net figure should be used in the calculation, not the gross figure. The exact wording of the regulations can be found in Section 55 of the Universal Credit Regulations 2013.
In summary, it's essential for individuals to understand how their pension contributions affect their UC entitlement. By providing accurate information about both workplace and personal pension contributions, claimants can ensure a fair assessment of their disposable income and potentially receive extra UC compared to someone who isn't contributing to a pension.
- Financial advice for those claiming Universal Credit (UC) should include information about how pension contributions, both workplace and personal, impact UC calculations.
- Personal pension contributions, while not currently deductible in the calculation of UC eligibility or award amounts, should be used in their net figure for UC calculations, not the gross figure after HMRC top-up.
- Self-employed individuals should provide information about their pension contributions, along with their self-employment profits, to ensure a fair and accurate assessment of their disposable income for UC purposes. This can potentially lead to receiving extra UC compared to someone who isn't contributing to a pension.
