I am in receipt of Universal Credit. I’m a single mother of three children.
I have been making payments into a Standard Life Personal Pension for several years, long before I was on UC.
I also pay into a workplace Nest pension, which is taken into account when my UC is calculated.
However, I have realised my personal pension payments should actually be taken into account too.
When I first signed on to UC in 2020, I remember asking on the phone and being told that personal pension contributions would not be taken into account.
In 2021 I wrote in my UC journal to double check this, and the next day a work coach replied ‘Hi, we would not take this into account.’
Because I trusted this advice, I did not push the issue and I continued paying into my personal pension, to which I’ve contributed approximately £15,600 since summer 2020.
After I watched a video you did about this, I’ve now contacted UC again to ask about the issue.
Shouldn’t these pension payments have been deducted from my earnings in terms of Universal Credit assessment all the way back to the start of my claim?
Steve Webb replies: It is deeply frustrating that we continue to hear from readers who have been given incorrect information by the Department for Work and Pensions about how pension contributions are treated for those on Universal Credit.
And, in your case, a large error has been going on for more than six years, and you will now be getting an arrears payment of nearly £9,000 now that DWP is finally putting it right.
The basic principle is that money you pay into a pension comes off your income before you are assessed for Universal Credit.
This means that if you choose to save for your retirement, you qualify for extra Universal Credit.
The problem arises from the fact that the DWP system was only set up to take account of pension contributions automatically in certain circumstances.
In the simple case of a workplace pension, such as your Nest pension, the system works well.
Your employer is required to notify HMRC every time you are paid, and to include information about any pension contributions via the paypacket.
This is a process known as ‘Real Time Information’ (RTI). As a result, your contributions in one month should be reflected straight away in your next month’s Universal Credit.
For the self-employed there is a different process, as there is no equivalent to RTI.
Instead, self-employed people on Universal Credit fill in a form which covers all of the items which can be deducted from their income (profit) before UC is worked out.
This form has a space for pension contributions.
But what the people who designed Universal Credit do not seem to have thought about is that there is a third route to think about – people such as yourself who choose to save into a personal pension directly, rather than (or in addition to) the workplace pension.
These contributions should be treated in just the same way as any other pension contributions. But many DWP frontline staff don’t seem to be aware of this.
You were told on the phone and via your UC ‘diary’ that these contributions could not be deducted. We hear of this time and again.
Fortunately, your diary shows that you raised this with them back in 2021, and you have confirmed that you asked about the issue when you started claiming in 2020.
So, DWP has now agreed to amend its calculations for the last six years. In addition to a large arrears payment, you will now receive a larger monthly amount going forward.
But you have told me that even now this is going to be a bureaucratic process.
Because there is no system for collecting this information, you will have to notify DWP every month about your pension payment and it will then send you a link where you can verify the figure involved.
This will then be reflected in your UC.
We have written about this Universal Credit issue before and DWP has assured us that staff are now being given better training.
But your experiences make me wonder just how many more people there are in your situation, who were told in the past that these deductions did not count and have not pursued the matter.
And I cannot help feeling that there must be an easier way for people to be able to notify DWP of regular contributions like this, instead of the rather clumsy process that you now have to follow.
I took your case up with DWP, which has now put things right.
It said: ‘We apologise to your reader that this has happened and we are resolving the issue.
‘We have improved guidance for staff to accurately assess Universal Credit entitlement to help prevent this issue happening again.’
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