If you claim, or plan to claim, any means-tested benefits, where the amount you get depends on your savings and income, a lump sum payment such as a redundancy pay-out, a drawdown from your pension or an inheritance, could affect the amount of any benefits you are entitled to.
Means-tested benefits, such as Universal Credit, Income-based Jobseekers Allowance, income-related Employment and Support Allowance, Housing Benefit, Pension Credit and Council Tax Support, are only available to those on low incomes. The amount of savings you have can reduce your entitlement, or mean you’re not eligible to claim.
Here, we explain the various benefit thresholds and limits to be aware of, and what happens if your savings or income exceed them. The Government typically looks to assess the amount of ‘capital’ you have when you apply for means-tested benefits. This not only includes any savings accounts you might have, but also any investments, Premium Bonds, or any property you own other than your main home.
Not everything you own is considered capital however. For example, certain things such as your personal possessions, any pre-paid funeral plans or life insurance policies which haven’t been cashed in won’t be factored into capital calculations.
If you have pensions, but haven’t yet reached Pension Credit qualifying age, only the money you take out of your pension will be taken into account when your benefits application is assessed. If, however, you have reached State Pension qualifying age, then both money you take out of your pension and money left in them will be factored in when you’re assessed for benefits.
Universal Credit is a benefit that is payable to those who are on a low income or out of work and who have £16,000 or less in savings. If you have more than £6,000 in savings (but less than £16,000) you may still qualify, but it will have an impact on the amount you can claim. For example, for each £250 (or any part of £250) you have over £6,000, your Universal Credit will reduce by £4.35. For example, if you have savings of £6,450, you’ll have £8.70 taken off your monthly Universal Credit payment.
If you have £9,000 in a savings account, the first £6,000 is ignored and the remaining £3,000 is counted as giving you an income of £52.20 (£3,000 ÷ £250 = 12 then 12 x £4.35 = £52.20). This means £52.20 will be deducted from your monthly Universal Credit payment.
If you live with your partner, their income and savings will also be taken into account when your entitlement to Universal Credit is assessed, even if they themselves aren’t eligible for it.
If you’re self-employed and have more than £16,000 in savings because you’ve been putting this aside to pay your tax bills, there is an exemption that means this won’t be counted as capital.
Find out more in our article Everything you need to know about Universal Credit.
Income-based Jobseeker’s Allowance and Income-related Employment and Support Allowance
If your total capital is more than £16,000, you won’t be eligible for either income-based Jobseeker’s Allowance or income-related Employment and Support Allowance. If you’ve received a generous redundancy pay-out which pushes your capital above this threshold, you’ll be expected to use this money to help you cover your living costs. If you have to dig into your savings for several months and your savings fall beneath this threshold then you should still be eligible to re-apply when your savings levels fall beneath this amount.
If you have less than £16,000 of savings and capital, but more than £6,000, then you will still be eligible to claim these benefits, but the amount you receive will be reduced.
The first £6,000 of capital (or £10,000 for claimants of some benefits if they are in a care home) is ignored and won’t affect these benefits. For every £250 of additional savings you have over £6,000, an income of £1 a week is assumed, which will reduce the amount of benefit payable up until the threshold of £16,000 of savings – at which point you will no longer be eligible to claim the benefits. This assumed extra income of £1 per week is added to any other income you have, such as your earnings or pension.
You won’t usually get Housing Benefit if you have savings over £16,000. You also won’t qualify if you’re already claiming Universal Credit.
The amount you’ll get depends on your rent and also your household income – including benefits, pensions and savings over £6,000.
However, there is an exception to this – if you receive the Guarantee part of Pension Credit, your income and savings are not taken into account, and your rent may be covered in full by Housing Benefit. Find out more about Housing Benefit here.
Council Tax Support
Council Tax Support, often known as Council Tax Reduction (CTR) is a benefit designed to help those on low incomes with their Council Tax bills. Each local authority in England will run its own CTR scheme with its own specific set of rules, but some general principles apply to most schemes about who’s eligible.
For example, you’ll usually only be entitled to Council Tax Support if you have savings and capital of less than £16,000. If you have capital between £10,000 and £16,000, your local authority will typically treat this as income, and assume that you have an income of £1 a week for each £500 of capital between these thresholds,
However, if you’re currently receiving the guarantee part of Pension Credit, you’ll be eligible to claim a full reduction on your Council Tax and your local authority will disregard your income and your capital.
If you only get the savings element of Pension Credit, your local authority will look at your income and capital when assessing how much support you’re entitled to. Again, you won’t be entitled to any Council Tax Support if you have more than £16,000 of capital.
If you’re claiming Council Tax Support and receive a redundancy pay-out, pension drawdown or other lump sum payment that pushes your capital above the £16,000 threshold, you’ll need to notify your local authority who will then determine whether you’re still eligible for any support.
There are two elements to Pension Credit, the Guarantee Credit and the Saving Credit. If you’re part of a couple, you’ll only qualify for the Guarantee Credit element of Pension Credit if you and your partner have both reached State Pension age, or if one of you is getting Housing Benefit for people over the State Pension age. Your weekly income as a couple must be less than £265.20 to qualify.
If you’re single, you may be eligible for Guarantee Credit if you’ve reached State Pension age and your weekly income is less than £173.75.
If you reached State Pension age before 6 April 2016, you may also be eligible for the Savings Credit element of Pension Credit. This could give you up to £13.97 extra a week if you’re single, or £15.62 if you’re in a couple.
The amount you’ll get from Pension Credit will reduce if you have savings or investments over £10,000. For every £500 or part £500 above this threshold, you’ll be counted as having £1 of income. This is added to any other income you have, such as your earnings or pension.
You can find out if you’re eligible for Pension Credit and how much you can get using the Gov.uk Pension Credit calculator. This will provide you with an estimate of how much you could get from Pension Credit based on the savings and investments you have, and your earnings and income from benefits and pensions.
Learn more about how Pension Credit works in our article Pension Credit explained.
Where to go for more information
The rules surrounding savings and your entitlement to benefits can be extremely complicated, so seek advice if you’re not sure about the impact your capital could have on a benefits claim. There are several organisations which can advise you about how a lump sum payment could affect your entitlement to benefits. If you’re eligible for support, they can help you submit a claim.
For example, charity Turn2us can assess your eligibility for benefits through its Turn2us benefits calculator or if you’d rather speak to someone, you can contact them by phone on 0808 802 2000. The site Entitledto.co.uk also has a free benefits calculator which you can use to work out whether you qualify for financial support.
Alternatively, you can get help from Citizens Advice. You can search for your local Citizens Advice here or you can telephone their customer service helpline on 0344 411 1444. You can also read more about other forms of help you might be able to get in our article Financial support for those affected by coronavirus.
If you do receive a lump sum payment, either because you’ve been made redundant, been given a cash gift, or received an inheritance, don’t be tempted to try and reduce your savings to boost the amount you receive in benefits. If the Department for Work and Pensions (DWP) gets wind of the fact you’ve bought possessions which are excluded from means-testing, or you’ve given away your money, they’re likely to consider this a ‘deprivation of assets’. If they think you’ve done this deliberately, they might still take these savings into account when assessing the benefits you’re entitled to, even though you no longer have them.
Do you claim benefits, or did your savings or a redundancy pay-out prevent you from doing so? We’d be interested in hearing from you. You can join the conversation on the Rest Less community or leave a comment below.