How do savings and lump sum pay-outs affect benefits?

Money Advice Service

Some benefits are affected by the amount of money you have in savings, such as cash in a savings account, or investments in shares. These benefits are called means-tested benefits. Find out more about which benefits are affected by savings or a lump sum pay-out, such as redundancy pay or compensation.

Which benefits are affected by savings?

The main means-tested benefits that are affected by both income and savings include:

  • Income-based Jobseekers Allowance
  • Income-related Employment and Support Allowance
  • Housing Benefit
  • Income Support
  • Pension Credit
  • Universal Credit.

What are the savings limits?

If you or your partner have £6,000 (£10,000 if you are over state pension age) or less in savings this will not affect your claim for these benefits.

If you or your partner have £16,000 or more in savings, you will not be entitled to any of these benefits.

If you have savings between £6,000 and £16,000

If you or your partner have any savings or capital of between £6,000 and £16,000, the first £6,000 is ignored.

The rest is treated as if it gives you a monthly income of £4.35 for each £250, or part of £250.

Example

  • You have £7,000 in a savings account
  • The first £6,000 of it is ignored
  • The remaining £1,000 is counted as giving you a monthly income of £17.40
  • £1,000 ÷ £250 = 4
  • 4 × £4.35 = £17.40
  • £17.40 will be taken off your monthly Universal Credit payment.

How savings affect Council Tax Support

Council Tax Support (CTS) is run by local councils and if you are of working age the amount of savings you are allowed to have depends on the rules of the CTS scheme in your area.

Your local council can tell you more about how the scheme works where you live.

If you are getting Pension Credit and qualify for Council Tax Support, your savings could affect how much you get.

How savings affect Tax Credits

If you are getting Working or Child Tax Credits, only taxable income is taken into account, so you might be able to claim tax credits, regardless of the amount of money you have in savings.

However, the interest you earn from savings is classed as income. Any income from savings over £300 will be taken into account and will affect how much you get.

How your savings are affected if you move from Tax Credits to Universal Credit

The government is proposing if you have over £16,000 in savings, you would normally not qualify for Universal Credit. But, if you’re moving from Tax Credits to Universal Credit, anything you have over the £16,000 limit will be disregarded for 12 months from the point you move to Universal Credit. After 12 months, the normal rules apply. Final details are yet to be confirmed.

How savings affect Pension Credit

There is no upper capital limit for Pension Credit but you may receive a reduced amount if you have more than £10,000 of capital.

For every £500 or part of £500 of capital over £10,000, you’ll be treated as having an income of £1 a week. This is added to any other income you have, such as a pension.

Find out more about savings rules for benefits if you’re over 60 on the EntitledTo website.

What counts as savings?

Savings are counted as any money you can get hold of relatively easily, or financial products that can be sold on. These include:

  • cash and money in bank or building society accounts, including current accounts that don’t pay interest
  • National Savings and Investments savings account and Premium Bonds
  • stocks and shares
  • property, which is not your main home.

Under certain circumstances, other properties you own, which you don’t live in, might be disregarded. You can find out more at EntitledTo.co.uk.

Other savings and capital are disregarded including:

  • personal possessions, such as jewellery, furniture or a car
  • value of any pre-paid funeral plans
  • life insurance policies which have not been cashed in
  • insurance claims will be ignored for six months if used to replace or repair.

Will my redundancy pay or other lump-sum payment affect my benefits?

Yes, any cash payments you receive will be treated as savings for any means-tested benefits you claim.

If you’re claiming benefits and are claiming, or thinking about claiming, compensation for an accident, injury or disease which was not your fault, your pay-out might be affected.

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Deprivation of assets

You are not allowed to intentionally reduce your assets or savings to increase the amount you get in benefits. The Department of Work and Pensions (DWP) calls this deprivation of assets.

Deprivation of assets can include:

  • giving away money
  • transferring ownership of a property
  • buying possessions which are excluded from means testing, for example cars and jewellery.

If you have done any of these things before making a claim for benefits, the DWP will look at when you got rid of your savings and assets.

If it’s believed you might have deprived yourself of savings or assets, the DWP or your local council, might look at the evidence to decide if it was deliberate.

If at the time, you would not have been able to predict needing benefits, then it might not count as deprivation of assets. You may be asked to provide paperwork and receipts to back up the date and the reasons why you got rid of savings or assets.

If it’s decided you have deliberately deprived yourself of savings or assets, you will be treated as if you still had them. This is called notional capital.

The notional capital will be added to the assets and savings you do have and will affect the amount you will get in benefits.

Find out more about deprivation of assets and notional capital on the EntitledTo website.

Backdated lump sum payments from DWP

If your benefits have been underpaid you could be entitled to a back payment from the Department of Work and Pensions (DWP).

This might involve a substantial lump sum payment, which could push you over the savings limits for means tested benefits, including:

  • income-based Jobseeker’s Allowance
  • income-related Employment and Support Allowance
  • Income Support
  • Universal Credit
  • Housing Benefit
  • Pension Credit

In some cases, this payment is not counted as savings for one year and will not affect your income related or means tested benefits during this time.
However, where benefits have been underpaid because of:

  • an official error
  • an error on point of law

any payments over £5,000 can be disregarded for the length of the claim or until the award ends.

PIP mobility component and mental health

In September 2018 it was decided if you’re unable, or find it difficult, to plan or make a journey due to mental health conditions, you’re entitled to the Personal Independence Payment (PIP) mobility component.

If you already getting PIP and think you might benefit from this, you don’t need to do anything. The DWP is currently reviewing all PIP claims and you will be contacted directly.

If you’ve already asked for your PIP award to be reviewed, simply continue with your request.

Claims will be backdated to 28 November 2016.

ESA underpayments

Around 70,000 people have been underpaid Employment and Support Allowance after transferring from older benefits, including Incapacity Benefit.

The people most affected are approximately the 20,000 who were entitled to the ‘severe disability premium’ and were not paid it. In some cases, people may be owed up to £20,000.

The Department of Work and Pensions (DWP) is now making backdated payments to affected customers. Payments will be made going back to the date of the original claim.

If you think you might be owed compensation, you don’t need to do anything. DWP will contact you directly.

This article is provided by the Money Advice Service.

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