£100 in your pension costs you about £36
You put in £80. The government adds £20. And your UC goes up by £44.
- £36 is your own money
- £44 comes back to you as extra UC
- £20 is added by the government (this is tax relief)
That means you can build up a pension of your own while you're on UC, for a lot less than you'd think. It's money for later in life that's yours, in your name.
Good news: this is allowed
It's in the Universal Credit rules, and the government wants people to save for later in life. You're not bending any rules by doing it.
Some of the words on UC letters can be confusing. There's a list of what they mean at the end of this page.
Is it for you?
Start at the top. One "no" means it's not the right time.
Then check the benefit cap (not needed if you get LCWRA, PIP or a carer benefit) and, if you're self-employed, the minimum income floor.
How much should you put in?
There's no limit in the UC rules. But there's a point where your UC stops going up.
Some people can earn a set amount first
If you have children, or a health condition that limits your work, you can earn some money before your UC goes down at all. It's £427 a month if UC helps with your rent, or £710 if it doesn't. UC calls this your work allowance.
So the most worth putting in each month is your take-home pay, minus that amount. If you don't get a work allowance, it's your whole take-home pay.
Example: Sam takes home £1,500 a month and gets help with rent. Sam can earn £427 before UC goes down. So putting in up to £1,073 a month raises Sam's UC. Sam can put in more, and it still all goes into the pension, but Sam's UC won't go up any further.
Putting in a lot means living on less now. Only put in what you can manage.
What to do every month
UC can't see money you put in yourself. So each month you tell them, show them proof, and the extra UC is paid a few weeks later.
Next month, start again at step 1.
The first time, send a short message explaining the rule. There's one ready to copy on the reporting pension payments page, under "Messages you can copy", with all the other messages you'll need. The same page shows an example of what to send. It's worth bookmarking, because you'll use it every month.
If DWP says no
Mistakes happen, often because the person dealing with it hasn't seen it before. Stay calm and polite, and stop as soon as it's sorted.
Slow or poor service at any point? Complain to DWP, or ask your MP. Still unhappy with DWP's final answer? You can go to the Independent Case Examiner within six months. It's free.
The replies and letters for each step are on the when DWP gets it wrong page, under "If it's about pension payments".
Watch out for
- The last two days of your UC month. A payment right at the end might not count. Pay in earlier.
- Changing pension company while you're on UC. It can cause delays. If you do, send proof that the new pension is properly registered.
- UC might not pay all your rent. If you rent privately, UC only pays up to a limit for your area, called the Local Housing Allowance. In a council or housing association home, it pays less if you have a spare bedroom. When you work things out, use the housing amount on your Universal Credit statement, not your full rent.
- The benefit cap. Ignore this if you get LCWRA, PIP or a carer benefit. Otherwise, putting in a lot could take your wages under £881 a month and bring the cap in. Check with the benefit cap calculator.
- Being self-employed. A rule called the minimum income floor can stop this working. See the minimum income floor.
- Moving savings into a pension to get under the savings limits. DWP can treat you as still having the money. Pay in from your wages instead.
- Taking money out of your pension while you're on UC. It counts against your UC.
- Putting in more than you earn before tax in a year. You don't get tax relief on the extra.
What the words mean
- Universal Credit statement
- The statement in your online Universal Credit account each month. It shows how your payment was worked out, including the earnings DWP has counted. It isn't your bank statement.
- Assessment period
- Your UC month: the monthly period your payment covers. It runs between the same dates every month, for example the 5th to the 4th. The dates are on your Universal Credit statement.
- Work allowance
- The amount some people can earn before their UC goes down: £427 a month if UC helps with your rent, £710 if it doesn't. You get it if you have children or a health condition that limits your work.
- Local Housing Allowance
- The most UC will pay towards rent to a private landlord. It depends on where you live and how many bedrooms UC says you need.
- Universal Credit journal
- The message page in your online Universal Credit account. You use it to send messages to DWP.
- Upload to-do
- A task DWP adds to your account so you can send them documents.
- Personal pension or SIPP
- A pension you pay into yourself, not through work. A SIPP is a type where you choose what it's invested in.
- Tax relief
- Money the government adds to your pension. For every £80 you put in, it adds £20.
- LCWRA
- Short for "limited capability for work and work-related activity". An extra amount of UC for people whose health stops them working.
- Mandatory reconsideration
- Asking DWP to look at a decision again. You have to do this before you can appeal.
Read more
- How UC treats money you put into a pension: the rule, what it's worth, and why it's allowed.
- Who it suits, and who should think twice.
- Reporting pension payments: what to do each month, with messages to copy.
- When DWP gets it wrong: what to do, step by step.