How savings can affect you claiming Universal Credit and other benefits

Creating an emergency fund is one of the most common financial advice.

However, if you are receiving means-tested benefits, it is important to understand how having savings may affect your entitlement.

“People on benefits are often told to build an emergency fund, but not enough attention is paid to addressing concerns about how savings affect the support they rely on and what the rules are around this, leaving room for misunderstanding and anxiety,” says Vix Leyton, consumer finance expert at Think Money.

“With that in mind, it’s completely understandable that people are nervous about putting money away.”

Here’s what you need to know.

What are the means-tested benefits?

Means-tested benefits such as Universal Credit, Pension Credit and Housing Benefit depend on your financial circumstances.

In addition to your income, how much capital you have (aka savings, investments, and other assets) will be used to determine whether you qualify and how much you will receive.

Other benefits such as State Pension, Attendance Allowance and Personal Independence Payment are not means tested. Thanks to these advantages, your savings and assets will not affect your rights.

Will I lose my Universal Credit if I have savings?

According to the government, around 8.4 million people in the UK are on Universal Credit and around 1.6 million are on Housing Benefit (although most working-age applicants have now switched to Universal Credit).

For any of these benefits, if your capital is less than £6,000 your payments will not be affected.

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If your capital is between £6,000 and £16,000, your Universal Credit payment (known as your award) will be reduced.

This is because the Department for Work and Pensions (DWP) assumes your savings are generating income. For every £250 (or part of £250) over the £6,000 threshold, your monthly reward will be reduced by £4.35.

If your capital exceeds £16,000, you will generally not be eligible for Universal Credit or Housing Benefit.

What about Pension Credit?

Around 1.4 million people in the UK receive Pension Credit, a means-tested benefit that boosts the income of low-income pensioners.

If your savings and capital are £10,000 or less this will not affect your entitlement to Pension Credit. But every £500 over £10,000 counts as £1 per week of income.

For example, someone with £15,000 in savings will have £10 per week added to their assumed income calculation, reducing the amount of Pension Credit they receive.

What counts as capital?

When it comes to calculating benefit payments, capital includes cash savings, investments, cryptocurrency, assets, and property other than your primary residence.

But your home, car, and most personal belongings are often overlooked. Money allocated for the self-assessment tax bill and some compensation or insurance payments may also be temporarily disregarded.

However, an inheritance usually counts as capital and may reduce or end your entitlement to Universal Credit.

Sarah Coles, head of personal finance at AJ Bell, says: “If you’re under state pension age and haven’t started drawing down on your pension, then your pension pot isn’t included. However, if you’re 55 or over and have started drawing on it, or are over your state pension age (currently 66) – even if you’re not taking money out of your pension – this will be taken into account.”

Why is my partner’s money important?

If you live with your partner, their income and savings will be included in assessing your eligibility for benefits, which are usually based on income.

This is because the DWP treats couples living together as a single household.

Coles says: “If you and a partner move together, it’s your total savings and investments that matter. This is true even if you keep your finances completely separate and even if you’ve only just moved.

“This may seem unfair to people who are not personally better off after the move if they lose their benefits in any way.”

Why should I save an emergency fund anyway?

Although having more savings reduces your eligibility for Universal Credit and Pension Credit, there are still significant advantages to building an emergency fund.

It can help you deal with unexpected expenses, reduce your reliance on credit, and give you greater financial security.

It is important to let the DWP know if your financial situation changes. If your savings increase or you move in with a partner and you don’t report it, you may be overpaid and asked to pay the money back later. Keeping records of your savings and lump sum payments can also be helpful if your claim is questioned.

Note that money held in a personal or business pension does not count towards the Universal Credit savings limit. This means that increasing your pension contributions may reduce the amount of capital taken into account for your claim, while increasing your pension fund.

You can also pay essential bills, such as council tax or home insurance, in advance rather than monthly. However, any decision made must be reasonable, as the DWP may investigate whether they believe you have deliberately reduced your savings to claim more benefits; This is called capital deprivation.

Leyton says: “The important distinction is between managing your finances sensibly and trying to make your finances look different than they actually are. The safest approach is to keep your finances transparent, keep records, understand what counts as capital for your benefit and report changes promptly so you don’t end up with overpayments.”

When investing, your capital is at risk and you may get back less than you invested. Past performance does not guarantee future results.