Complex Universal Credit savings rules mean 2million families miss out on cash

The Sun

24-04-2025

A COMPLEX Universal Credit savings rule is seeing 2million miss out on benefit cash.
A new report has found an increasing number of families are having their payments reduced or stopped due to frozen thresholds.
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Universal Credit is a means-tested benefit which means your income and "capital" is taken into account when deciding whether you qualify and how much you can get.
Money stowed away in bank accounts and ISAs as well as any cash you have is classed as capital.
But if you breach certain capital thresholds your Universal Credit payments are either reduced or stopped.
Have less than £6,000 in capital and you won't be deducted anything.
However, if you've got between £6,000 and £16,000 stashed away you will have some Universal Credit taken away while anyone with more than £16,000 is no longer eligible for the benefit.
Now, a new report from The Resolution Foundation has found around 2million families eligible for Universal Credit are having their payments reduced because they're breaching these thresholds.
The number of people breaching them is rising too, as they have been frozen since 2006 and haven't kept up with inflation.
In 2006-08, only 35% of UK families on Universal Credit had capital greater than £6,000, but by 2020-22 that had risen to 45%, it found.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: "If these (capital) limits are too low, there's a risk people will avoid putting away enough to protect themselves – for fear of losing their benefits.
"The fact that the thresholds have been frozen for so long means that someone who simply worked to ensure their savings kept up with inflation could easily have been dragged over a threshold."
How does work affect Universal Credit?
The Resolution Foundation says the current rules around capital thresholds undermine government savings schemes like Help to Save and Lifetime ISAs.
Meanwhile, it says the manner of the thresholds mean those on Universal Credit face a "cliff-edge" of losing some or all of their benefit even if they breach these limits by just a few pounds.
Molly Broome, senior economist at the Resolution Foundation, said: "The long-term neglect of the capital rules in Universal Credit means they are now undermining wider Government efforts to encourage low-income families to save.
'Important schemes such as Help to Save and Lifetime ISAs should be exempted from these capital rules so that families doing the right thing by saving into them aren't penalised for doing so.
'And with the Government currently reviewing Universal Credit, it should take the opportunity to index the capital thresholds to inflation, to prevent the system from penalising more families every year."
A Government spokesperson said: "We support millions of people through Universal Credit every year, and are committed to reviewing the benefit to make sure it is still doing the job we want it to.
"It is important we continue to strike the balance between protecting low-income households and our duty to the taxpayer, and the current thresholds allow people on Universal Credit to continue saving, whilst encouraging them to manage their own day-to-day support."
How do the capital limits work?
Your Universal Credit payments can be affected by any money, savings and investments you have, known as capital.
Any properties you own but do not live in also have a bearing on your payments.
If you have capital worth between £6,000 and £16,000, the DWP takes money off your monthly payment.
Anyone with capital over £16,000 does not receive any Universal Credit.
Your Universal Credit goes down by £4.35 for every £250 you have in capital between these two amounts.
Another £4.35 is taken off for any remaining amount that is not a complete £250.
So, if you have capital of £6,300, and classed as having £300 in capital over the £6,000 threshold, your Universal Credit is reduced by £8.70 (2 x £4.35 a month).
If you have capital of £14,500, you are classed as having £8,500 of capital over the £6,000 limit.
Your Universal Credit payments are reduced by £147.90 (34 x £4.35 a month).
If you have £17,000 in capital, you do not qualify for Universal Credit.
The Government has a list on its website of what it classes as capital.
Some of these include cash, money in a bank account, any savings accounts including ISAs, savings for children in your name and more.
Any income you've earned, say from salary from a job, is counted as capital if you have not spent it by the end of the assessment period after the one it was received in.
You can find out more via www.gov.uk/guidance/universal-credit-money-savings-and-investments.
You can also use a free calculator to find out how much any capital you've got will affect a Universal Credit claim.
Charity Turn2Us' can be found via benefits-calculator.turn2us.org.uk.
Are you missing out on benefits?
YOU can use a benefits calculator to help check that you are not missing out on money you are entitled to
Charity Turn2Us' benefits calculator works out what you could get.
Entitledto's free calculator determines whether you qualify for various benefits, tax credit and Universal Credit.
MoneySavingExpert.com and charity StepChange both have benefits tools powered by Entitledto's data.
You can use Policy in Practice's calculator to determine which benefits you could receive and how much cash you'll have left over each month after paying for housing costs.
Your exact entitlement will only be clear when you make a claim, but calculators can indicate what you might be eligible for.
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