How do savings and lump sum payouts affect benefits?

The main means-tested benefits that are affected by both income and savings include:

• Universal Credit
• Pension Credit
• Council Tax Support
• income-related Employment and Support Allowance
• Housing Benefit.

How much you have in savings will affect both whether you’re eligible and how much you receive in benefits.

Some of the above benefits are known as ‘legacy benefits’ and if you’re getting them you will be moved to Universal Credit. Find out more in our guide Moving to Universal Credit from other benefits.

When working out whether or not you’re eligible for Universal Credit and Pension Credit and how much to pay you, the Department for Work and Pensions (DWP) will look at all the money you have in savings and investments.

If you live with a partner anything they have in savings or investments is counted as well. However, any savings in your children’s name(s) is not counted.

Typical things that the DWP counts include:

• cash and money in bank or building society accounts, including current accounts that don’t pay interest
• National Savings & Investments savings accounts, and Premium Bonds
• stocks and shares
• inheritance
• your pension pot if you’re currently taking your pension 
• property, which isn’t your main home.

If you’ve recently received money or property and aren’t sure whether it counts as savings, you can report a change in circumstances and ask the DWP. 

If you’re writing your will and don’t want the inheritance you leave somebody to affect their benefits, it could be worth seeking professional advice. They might suggest you set up a trust, especially if the person you’re leaving money or assets to is vulnerable. For more information read our guide about using a trust to cut inheritance tax.

When money and other valuables don’t count towards your total savings, the DWP refers to these as ‘disregarded’.

Typical things that are disregarded include: 

• personal possessions, such as jewellery, furniture or a car 
• your pension pot if you haven’t started withdrawing from it yet 
• value of any pre-paid funeral plans
• life insurance policies that haven't been cashed in
• insurance claims will be ignored for six months if used to replace or repair something.

The Department for Work and Pensions (DWP) is responsible for determining what savings are included or excluded in a benefits claim. This can be based on your personal circumstances.

If you’re spending money or giving it to other people to reduce your total savings amount, the DWP might still consider this as part of your savings. The DWP have the final say on what does or doesn’t count towards savings, if in doubt, you can ask for confirmation of their decision in writing.

If you’re not happy with a benefits decision, you have the right to appeal. 

Find out more about this in our guide How to appeal a benefits decision.

When assessing your eligibility for Universal Credit and Pension Credit, the DWP will look at how much you have in savings.

To be able to claim Universal Credit, you (and your partner if relevant) usually can’t have total savings of more than £16,000. 

If you or your partner have £6,000 or less in savings, this won’t affect your claim at all.

It becomes a bit more complicated if you and/or your partner have any savings or capital of between £6,000 and £16,000.

The first £6,000 is ignored. But the rest is treated as if it gives you a monthly income of £4.35 for each £250, or any remaining amount that is not a complete £250.

See the following example for help understanding this.

• You’re claiming Universal Credit and have £7,000 in a savings account
• the first £6,000 of it is ignored
• the remaining £1,000 is counted as giving you a monthly income of £17.40
• £1,000 ÷ £250 = 4
• 4 × £4.35 = £17.40
• £17.40 will be taken off your monthly Universal Credit payment.

If you have moved to Universal Credit from tax credits as part of the ‘Move to Universal Credit’ programme, (this is when nothing has changed in your life, but the DWP asked you to move across to Universal Credit) any savings you have over £16,000 will not be counted (disregarded) for 12 months from when you move to Universal Credit. After 12 months, the normal rules apply. 

Find out more about how Universal Credit works in our guide Moving to Universal Credit from other benefits.

If you have £10,000 or less in savings or investments (including your pension pot) it won’t affect how much Pension Credit you'll receive. But you might get a reduced amount if you have more than £10,000 saved.

For every £500, or any remaining amount that is not a complete £500, of pensions or savings you have over £10,000 – you’ll be treated as having an income of £1 a week.

This is added to any other income you have, such as a pension, when working out how much Pension Credit you’re due. 

Find out more in our guide Increase your retirement income with Pension Credit.

Find out more about savings rules for benefits if you’re over 60Opens in a new window on entitledto.

Council Tax Support is run by local councils.

If you’re of working age, the amount of savings you’re allowed to have depends on the rules of the Council Tax Support scheme in your area.

Your local council can tell you more about how the scheme works where you live.

If you’re getting Pension Credit and qualify for Council Tax Support, your savings could affect how much you get.

You can’t make a new claim for these benefits as they’re being replaced by Universal Credit.

Are you already claiming one of these benefits and you have savings worth £6,000 or more? Then you’ll need to let the office that pays your benefit know.

If you suddenly have a windfall of £16,000 or more this can also affect your right to claim these benefits.

If you get redundancy pay, this will be treated as savings for any means-tested benefits you claim.

Bear in mind that not all benefits are means tested. If you’ve lost your job, the main benefit you can claim is new style Jobseeker’s Allowance – and this isn’t affected by your savings.

Compensation is treated as savings for any means-tested benefits you claim. You need to tell the office that pays your benefit as soon as you get your compensation payout.

When you claim compensation for an accident, injury or disease that wasn’t your fault, the organisation you’re claiming from must tell the Department for Work and Pensions (DWP).

If you’ve been getting benefits because of the accident, the organisation might have to pay back to the amount you’ve had in benefit to the DWP. This might be deducted from your payout.

You’re not allowed to intentionally reduce your assets or savings to increase the amount you get in benefits. The DWP calls this deprivation of assets.

Deprivation of assets can include:

• giving away money
• transferring ownership of a property
• buying possessions that are excluded from means testing, for example cars and jewellery.

If you’ve done any of these things before making a claim for benefits, the DWP will look at when you got rid of your savings and assets.

The DWP will look at the evidence to decide if they consider it to be deliberate.

If, at the time, you wouldn’t have been able to predict needing benefits, it might not count as deprivation of assets.

You might be asked to provide paperwork and receipts to back up the date, and the reasons for getting rid of savings or assets.

If it’s decided you have deliberately deprived yourself of savings or assets, you’ll be treated as if you still had them. This is called notional capital.

The notional capital will be added to the assets and savings you do have. This will affect the amount you’ll get in benefits.

If your benefits have been underpaid, you could be entitled to a back payment from the DWP.

This might involve a substantial lump sum payment. This could push you over the savings limits for means-tested benefits, including:

• income-related Employment and Support Allowance
• Universal Credit
• Housing Benefit
• Pension Credit.

In some cases, this payment isn’t counted as savings for one year and won’t affect your income-related or means-tested benefits during this time.

However, where benefits have been underpaid because of an error, any payments over £5,000 can be disregarded for the length of the claim or until the award ends.

Find out more on the Universal Credit essentials websiteOpens in a new window