People claiming Universal Credit may want to think twice before taking money out of a pension.
With household bills continuing to put pressure on many families, accessing a pension early can seem like a useful way to cover a large expense. But depending on how much money is taken and what happens to it afterwards, the withdrawal could affect a person’s financial position when their Universal Credit is assessed.
That is why claimants should understand the rules before taking a lump sum.
Why a pension withdrawal can matter
Universal Credit is means-tested, so the DWP looks at a claimant’s wider financial circumstances when working out how much support they should receive.
Money taken from a pension can become important if it is kept as savings or adds to other capital a person already has.
Under the Universal Credit rules, capital below £6,000 does not normally affect the payment. If a claimant has between £6,000 and £16,000 in capital, their Universal Credit can be reduced. Someone with more than £16,000 will generally not be entitled to Universal Credit.
For someone close to one of these limits, a pension withdrawal could therefore make a noticeable difference.
What if the money is spent?
This is where things can become more complicated.
Taking money from a pension does not automatically mean that a person will lose their Universal Credit.
What matters is the person’s overall circumstances and what happens to the money after it has been withdrawn. Someone might use a lump sum to pay essential household bills, replace a broken appliance or deal with an unexpected expense.
However, claimants should not deliberately give away or spend money simply to reduce their capital and qualify for more benefits. The DWP can look at whether someone has intentionally reduced their available capital.
Check before taking a lump sum
For anyone currently receiving Universal Credit, it may be worth checking the possible impact before accessing a pension.
This is especially important if the withdrawal would leave the claimant with savings close to the £6,000 or £16,000 thresholds.
Keeping a clear record of where the money goes can also be sensible, particularly if a large amount is withdrawn and later spent on major expenses.
People who are unsure about their particular circumstances can seek independent benefits or financial advice before making a decision.
The important point for Universal Credit claimants
There is no blanket rule saying that everyone who withdraws money from a pension will lose their Universal Credit.
The outcome depends on the individual’s circumstances, including their capital, the amount withdrawn and how the money is subsequently used.
For households already working with a tight monthly budget, finding this out after taking the money could come as an unwelcome surprise. Checking the rules first could help claimants understand what a pension withdrawal might mean for their Universal Credit before they make the decision.
