Thousands of people could be owed Universal Credit increases due to a pensions error by the Department for Work and Pensions, This is Money can exclusively reveal today.
Claimants saving for their pensions could be entitled to increases, as well as arrears, after our columnist Steve Webb uncovered a potentially huge and costly error.
A This is Money reader alerted Webb by writing to ask if pension contributions were being correctly accounted for in his UC payments.
More people then got in touch to say they had received written messages from DWP staff wrongly refusing to deduct pension payments from their wages before calculating their Universal Credit.
The result was that they were paid less than they were entitled to in Universal Credit. See below for what to do if you think you have been paid less than you are entitled to.
Former Pensions Minister Steve Webb and This is Money have investigated a number of DWP scandals over the years, including billions of pounds in state pension underpayments to older women and a secret computer glitch that affected the state pension records of up to ten million Universal Credit claimants.
Many Universal Credit claimants are in work and therefore automatically enrolled in pensions, or some make personal contributions to private schemes if they can afford to.
These pension payments should be deducted before calculating your UC, to avoid penalising people receiving state benefits (in some cases, temporarily) for saving for their old age.
Rahel Hussain, 43, a carer and part-time restaurant worker from Birmingham who questioned the amount of Universal Credit he was receiving, called for a system for people like him to report pension contributions.
It is shocking to hear from readers that the DWP has misled them in writing, claiming that personal pension contributions cannot be deducted.
Former Pensions Minister Steve Webb
“I think this is crucial for applicants like me,” he said.
“I want to ensure that applicants in my position are not disadvantaged, as well as ensuring that the DWP has processes and systems in place to ensure its staff are aware of what is and is not allowed within the current rules and regulations.”
A 57-year-old picture framer from London has now been awarded around £100 in arrears and a £23-a-month increase in his monthly UC payments.
He told us that before Webb’s intervention, the DWP had been “absolutely adamant” that his pension contributions could not be deducted from his income before his UC payments were calculated.
In a third case, Webb helped a This is Money reader recover £1,500 in arrears.
A DWP spokesperson said: “We have apologised to these claimants and are working with them to ensure their future entitlement to Universal Credit is correct.”
It confirmed that personal pension contributions must be deducted from income before Universal Credit is calculated.
However, evidence of contributions must be provided before the end of the applicant’s evaluation period to ensure accuracy.
Additional DWP staff, including employment advisers at jobcentres, receive ongoing training and access to guidance that is updated at regular intervals.
Webb, who is a partner at consultancy LCP, said: ‘Contributing to a pension has many attractions, especially for people receiving Universal Credit.
‘This is because your pension contribution must be deducted from your salary before your benefit is calculated, giving you a little extra each month.
“It is therefore shocking to hear from readers that the DWP has misled them in writing by claiming that personal pension contributions cannot be deducted.”
He added: “While I’m pleased we’ve been able to put things right for these readers, I wonder how many more people have been misled.”
‘We will continue to investigate until we are confident that all types of pension contributions are being deducted correctly for the millions of workers receiving Universal Credit.’
Webb says it currently looks like this error could affect thousands of people who make personal contributions to their pensions while receiving UC.
However, the errors raise wider questions about whether the DWP is correctly processing other types of pension contributions, an issue that could potentially affect more than a million people.
We are therefore asking This is Money readers to help us get to the bottom of this matter.