Can you get universal credit if you receive a pension? Steve Webb

I am writing on behalf of my sister who has insisted that she is unable to get universal credit and I just don’t get it.

My sister has worked since leaving school and has National Insurance contributions to reflect this.

Now 62 years old, she is returning to work as a teaching assistant in September.

Benefits question: My sister is only on a small pension so why can't she get universal credit?

Benefits question: My sister is only on a small pension so why can't she get universal credit?

Benefits question: My sister is only on a small pension so why can’t she get universal credit?

Her previous employments pay a small occupational pension of £416 per month. These were contributory schemes (so as I understand it she contributed money from her own salary).

When lockdown came she had no work as schools closed, applied for universal credit and (eventually) received just over £250. She has a £500-plus per month mortgage.

I am struggling to understand why my sister cannot get a subsistence payment to cover mortgage/rent, food and basic living needs?

She has another five years to work before she is eligible for state pension. Does the Government want her to be homeless and out of work?

Apparently the basic award is £409. So but for a few pounds she is missing out. The family are lending her money. This can’t be right

Can you help shed any light on this please?

SCROLL DOWN TO FIND OUT HOW TO ASK STEVE YOUR PENSION QUESTION     

Steve Webb replies: Universal credit has a number of components to it, some of which are for basic living costs such as food and others are for housing costs.

The rules on support for people with mortgages have however changed relatively recently and that is part of the reason why your sister may not be entitled to any help.

Living costs: Payments are reduced if you have an income, including from pensions

Steve Webb: Find out how to ask the former Pensions Minister a question about your retirement savings in the box below

Steve Webb: Find out how to ask the former Pensions Minister a question about your retirement savings in the box below

Steve Webb: Find out how to ask the former Pensions Minister a question about your retirement savings in the box below

Starting with basic living costs, universal credit pays a ‘personal allowance’ each month and for a single person aged 25 or over the rate is, as you say, just over £409 per month.

Extra amounts may be payable for those with children, those with disabilities and so forth. 

Note that this rate includes a temporary increase due to the Covid-19 crisis but is set to be cut next year.

For those who have other income such as wages or occupational pensions, the amount of universal credit is reduced.

For wages, the deduction is sixty three pence in the pound. So, if you earn £100 per month, they will deduct £63 from your universal credit.

But for what they call ‘unearned income’ such as occupational pensions, the deduction is pound for pound. This is why a monthly pension of £416 effectively wipes out a personal allowance of £409.

In other words, they expect your sister to use her £416 pension to cover her basic living costs (excluding housing).

Housing costs: Mortgage help is only available if you don’t have a job

When it comes to housing costs, the rules depend on whether you are renting or buying.

STEVE WEBB ANSWERS YOUR PENSION QUESTIONS

       

For renters, DWP will generally add the rent to the amount of benefit you can get. 

This will not always be your actual rent figure as they can reduce it if, for example, they regard your rent as too high or your property as being too large (the so-called ‘bedroom tax’).

But in principle, if your sister was renting and only living on her pension, she could get most of her rent covered. If she went back to work, they would scale back her universal credit as described above.

However, for people with mortgages, the system is much less generous and indeed will only help your sister if she does not return to work.

In principle, universal credit will help with the interest on a mortgage (of up to £200,000) but there are three very important limitations:

– The help is now in the form of a loan rather than a benefit; this means that any help you get now will have to be paid back later, for example, when the property is sold;

– No help is available for the first 39 weeks on universal credit;

– No help is available to those in paid work.

You can read more about the rules on help with housing costs for those on universal credit on the government website here. 

As you may know, during the current crisis special arrangements have been made for people who are having trouble paying their mortgage.

In particular, until 31 October it is possible to apply for a three month ‘payment holiday’ to tide you over. You can read more about this scheme here. 

However, anyone having trouble paying their mortgage is encouraged to have a conversation with their lender as soon as possible to discuss the best way forward.

Ask Steve Webb a pension question

Former Pensions Minister Steve Webb is This Is Money’s Agony Uncle.

He is ready to answer your questions, whether you are still saving, in the process of stopping work, or juggling your finances in retirement.

Steve left the Department of Work and Pensions after the May 2015 election. He is now a partner at actuary and consulting firm Lane Clark & Peacock.

If you would like to ask Steve a question about pensions, please email him at pensionquestions@thisismoney.co.uk.

Steve will do his best to reply to your message in a forthcoming column, but he won’t be able to answer everyone or correspond privately with readers. Nothing in his replies constitutes regulated financial advice. Published questions are sometimes edited for brevity or other reasons.

Please include a daytime contact number with your message – this will be kept confidential and not used for marketing purposes.

If Steve is unable to answer your question, you can also contact The Pensions Advisory Service, a Government-backed organisation which gives free help to the public. TPAS can be found here and its number is 0800 011 3797.

Steve receives many questions about state pension forecasts and COPE – the Contracted Out Pension Equivalent. If you are writing to Steve on this topic, he responds to a typical reader question here. It includes links to Steve’s several earlier columns about state pension forecasts and contracting out, which might be helpful.  

TOP SIPPS FOR DIY PENSION INVESTORS

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