THOUSANDS of households could lose vital Universal Credit cash due to a little known rule.
Universal Credit claimants who opt to save into a certain type of savings account could see their payments cut, experts have warned.
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This is because the amount of savings you hold can affect how much of the benefit you’re entitled to.
With a lifetime individual savings account (LISA) you get a 25% bonus on top of the money you put into the account, up to £4,000 a year.
So if you save the full £4,000 into the account the maximum bonus you can earn is £1,000 a year.
LISAs are used by thousands to save for their first home.
But experts say that it’s “vital” to be aware that this bonus is included in your total savings allowance for Universal Credit
The bonus is paid monthly and could reduce the amount of Universal Credit you get.
The benefit amount you get each month is based on your circumstances – including how much savings you have.
Savings of less than £6,000 don’t count.
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A nest egg in any savings account of over this and under £16,000 will mean you get less than the full standard monthly allowance of Universal Credit, currently worth £X.
If you have savings of £16,000 or more, you won’t be entitled to any Universal Credit at all.
Anyone on Universal Credit with savings should be aware that they need to count both their own savings – and the bonus with a LISA.
Nick Hill, senior advice manager at the Money and Pensions Service, warned: “As with any financial product, it’s vital to be aware of how the LISA and its bonus affects you and whether it’s right for your circumstances.
“If you have less than £16,000 but more than £6,000 put away, you’ll lose £4.35 of Universal Credit each month for every £250 or part of £250.
“The first £6,000 of savings doesn’t count, but if you or your partner have more than £16,000, you won’t normally be entitled to Universal Credit.”
It’s up to claimants to say how much they have in savings each month, through their online journal.
Failing to report required information each month could lead to sanctions – where your monthly UC payment is reduced or stopped altogether.
If you don’t report a change in circumstances like going over these savings amounts, you could be taken to court or have to pay a penalty in the worst case.
Another way to avoid having your payments cut but still benefit from a government bonus is the Help to Save scheme.
Anna Stevenson, senior welfare benefits specialist at Turn2us, said: “If you’re receiving Universal Credit and are in a position to save, it might be worth also exploring the government’s help to save scheme, which pays bonuses on your savings.”
Help to Save is a type of savings account.
It allows those receiving Universal Credit to get a bonus of 50p for every £1 saved over four years.
If you were to save the maximum amount per month for the full four years you’d have £2,400 worth of savings plus £1,200 in bonus money.
So if this is the only savings account you hold it won’t affect your Universal Credit payments.
It is important to assess the perks of each account and understand what is best for you.
Here’s an overview of how LISAs and the Help to Save scheme work.
How does a lifetime ISA work?
The Lifetime Individual Savings Account (LISA) was introduced in April 2017 as a way of helping first-time buyers save for a home, and providing a more easy-access way to save for retirement.
You can save up to £4,000 a year into a LISA until you’re 50 and you’ll get a government bonus of 25% on what you put in.
That means if you put in a maximum of £4,000 a year, you’ll get a £1,000 free cash bonus.
You’ll also earn tax-free interest on your savings pot, including on the added extra from the government.
LISA accounts are open to anyone aged 18 to 39 and you can keep saving in one until you are 50 years old.
But you must make your first payment into your ISA before you’re 40.
If you opened a LISA at age 18 and saved the maximum amount for 32 years you’d get £32,000 of free government cash.
With a LISA, you can buy homes worth up to £450,000 in London and £250,000 outside London.
However, you’ll be charged a 25% fee on the amount withdrawn – including the bonus – if you want to use it for something other than its specific purposes or if you buy a home above the threshold.
How does help to save work?
If you’re able to save money while claiming Universal Credit it’s a good idea.
The Help to Save scheme pays a bonus on top of the money you stash away in the account.
Savers will get a 50p bonus for every £1 they put in the account over four years.
You can save between £1 and £50 every month, so you would get a £25 bonus each month if you paid in the maximum amount each time.
Over a year that adds up to £300, and reaches £1,200 over the full four years that you can have an account.
You will get your bonuses at the end of the second and fourth years of having the account.
You can find out who’s eligible and how to get an account in our guide.
