The Department for Work and Pensions (DWP) has spelled out the rules when it comes to Universal Credit eligibility and what savings are considered part of your capital. Ministers clarified how the system works after a question from an MP a to whether the Government would consider making Lifetime ISAs (LISA) exempt from capital rules.
LISAs are a savings scheme to save up for your first home or towards your retirement, where you get a 25% Government bonus on any deposits. You can deposit up to £4,000 a year meaning you can get up to £1,000 in bonus cash.
DWP minister Sir Stephen Timms provided a response. He said: “There are no plans to change the way savings held in a Lifetime ISA are treated in the assessment of Universal Credit.
“It is appropriate that means-tested benefits, including Universal Credit, take all forms of savings into account. This includes investments where the Government provides a contribution to encourage saving such as the Lifetime ISA.”
Mr Timms explained the different options that savers have when signing up to Universal Credit. He said: “People will not be required to cash in these ISAs in order to claim Universal Credit, but they will be taken into account as part of their capital.
“If a person has capital over £16,000, they will be expected to rely on their savings until their capital reduces to £16,000 before they can claim Universal Credit.”
Universal Credit rates increased from this month, as benefit payments went up 1.7%. The new standard allowance rates for Universal Credit are:
- Single and under 25 – £316.98
- Single and 25 or over – £400.14
- Couple both under 25 – £497.55
- Couple where either of you are 25 or over – £628.10.
The future of the Lifetime ISA has been discussed in Parliament this week, with Treasury minister Emma Reynolds talking to the Treasury committee about the savings vehicle.
She confirmed that the Government is “looking at ISA reform” but declined to go into specifics about their plans, when asked if they were thinking of scrapping the scheme.
Ms Reynolds was also asked about the dual purpose of the ISA, the fact you can use the funds to buy your first property as well as towards your retirement.
She said in her reply: “You could argue that one of the benefits of the dual purpose is it’s very flexible. You may have a situation where somebody is using it to purchase a home, that doesn’t work out, they could actually use it for a pension later in life.”
A person can open a LISA between the ages of 18 and 40, and make deposits until the age of 50. This means if you plan to use the cash for your retirement, you have to wait a decade where you can’t make any deposits, before you can access the funds at age 60.
