Universal Credit and legacy benefits may be reduced by lump sum back payments from the DWP

Legacy benefits and Universal Credit can have their payments altered by a person’s income levels and savings habits. This could be an unexpected problem for those who can receive certain entitlements from the DWP.


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If benefits are underpaid the receiver of them could be entitled to a back payment from the DWP.

According to the Money Advice Service, this could involve a substantial lump sum payment which could push people over the savings limit for certain means tested benefits.

The following legacy benefits and current offerings could be affected:

  • Income-based jobseeker’s allowance
  • Income-related employment and support allowance
  • Income support
  • Universal Credit
  • Housing benefit
  • Pension credit

In some cases however, the payment will not count as savings for one year and will not affect benefits during this period.

Where benefits have been underpaid because of an official error or an error on point of law, any payments over £5,000 will be disregarded for the length of the claim.

A person’s savings and income levels generally will have a big impact on their ability to receive state support.

Most forms of state benefits will be affected by the benefit cap which is a limit on the total amount a person can receive from benefit payments.

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Currently, benefit caps can vary depending on the claimant’s circumstances and location within the Country.

Claimants outside of Greater London can receive a maximum of £384.62 per week from benefits if they’re in a couple or are a single parent.

If the claimant is single with no children, the cap will decrease to £257.69 per week.

Claimants living in the capital will have a cap of £442.31 placed on them if they’re in a couple or have children, with singletons once again seeing a decrease to £296.35


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Universal Credit receivers may be able to utilise a “grace period” during which the benefit cap will not apply to them.

The payments won’t be affected by the benefit cap for up to nine months if all of the following are true:

  • The person is claiming Universal Credit because they stopped working or their earnings went down
  • They’re now earning less than £604 a month
  • In each of the 12 month before the earnings went down or the claimant stopped working they earned the same as or more than the earnings threshold (which is £604 a month)

If a Universal Credit claimant has between £6,000 and £16,000 in savings their payments will also be affected.

The government will assume that if claimants have more than £6,000 in savings, it will provide the claimant with a monthly income of £4.35 for each £250 or part of £250, they will then lower the Universal Credit payments accordingly.

People who have more than £16,000 in savings, either by themselves or split with a partner, will simply not be able to claim Universal Credit at all.

Full details on Universal Credit eligibility can be found on the governments website.

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