Lump sum payments and benefits
A lump sum is any one-off payment you receive. This can be any amount of money.
Lump sums and one-off payments are treated as capital rather than income.
Any regular payment is treated as income.
Most lump sums will count towards your savings. This may affect the benefits you receive.
For example, a monthly regular pension payment would count as income.
A one-off pension payment would count as capital, even if it is below the limits.
Lump sums that count as savings
Lump sums which may count as savings are:
- a private or work pension
- receiving an inheritance
- a compensation payment or insurance claim
- dividends from shares or bonds
- redundancy pay
Some lump sums may not count as savings for a certain amount of time:
- selling your house does not count for 26 weeks if you plan to buy a new home
- backdated benefits payments do not count for 1 year
Warning Get financial advice
You should ask an expert for advice before you take any lump sum payments.
Benefits affected by savings
Your savings may affect the amount of money you receive if you claim means-tested benefits. These are benefits based on your savings and income.
Benefits affected by savings are:
- Income-related Employment and Support Allowance (ESA)
- Universal Credit
- Housing Benefit
- Pension Credit
- Income-based Jobseeker’s Allowance (JSA)
- Income Support
- Council Tax Support
You should tell the relevant benefits office when you get a lump sum payment.
If you do not, you could be:
- fined
- paid too much in benefits which you may have to pay back
Benefits not affected by savings
Savings do not affect New Style Jobseeker’s Allowance or benefits linked to disability, such as:
- Attendance Allowance
- Carer’s Allowance
- New Style Employment and Support Allowance
- Disability Living Allowance
- Personal Independence Payment
Non means-tested benefits (Turn2us)
Carer’s Allowance
Carer’s Allowance does not have a savings limit. Most types of lump sums such as inheritance or pension payments will not affect Carer’s Allowance.
If you earn more than £151 a week, you would not be eligible for Carer’s Allowance. Some lump sums you receive from employment can count towards the earnings limit.
Make sure you declare any additional payments you get from work. This could include:
- payments you get after leaving a job
- bonuses, tips and commission
- some types of compensation
Savings limits
Each benefit has a different savings limit. This is the amount of money you can have before it affects your benefits.
If you live with a partner, their savings count towards the limit. This applies if you are married or not.
Warning Spending a lump sum
If you spend money to try to keep your savings under the limit, the DWP may still count it as part of your savings. They might call this ‘deprivation of capital’.
Pension lump sums
If you choose to take your pension as a lump sum, this will count as savings.
If you are over State Pension age and do not claim your pension, the DWP may still decide that pension counts as income. This may affect your benefits, including a joint Universal Credit claim with someone under pension age.
Check your State Pension age (GOV.UK)
You can claim your pension in a few other ways. To help you decide, speak to a pensions adviser.
Pension Wise is a free government service that offers free, impartial guidance.
Income-related ESA or Universal Credit
If your savings are:
- under £6,000, your benefit claim is not affected by your savings
- between £6,000 and £16,000, you lose some of your benefit payment
- more than £16,000, your Income-related ESA or Universal Credit will stop
Every £250 over £6,000 counts as if you had:
- £4.35 of monthly income for Universal Credit
- £1 of weekly income for Income-related ESA
For example, you receive Income-related ESA. You have £7,000 in savings.
The first £6,000 is ignored. Every £250 of the remaining £1,000 counts as £1 of weekly income.
This means £4 comes off your weekly ESA payment.
Contribution-based ESA is not affected
Find out what type of ESA you are on by:
- looking at your award or at other letters
- contacting the DWP
Housing Benefit
The limits for Housing Benefit are different if you’re over State Pension age.
Check your State Pension age (GOV.UK)
If you are below State Pension age
If your savings are:
- under £6,000, your benefit claim is not affected by your savings
- between £6,000 and £16,000, you lose some of your benefit payment
- more than £16,000, your Housing Benefit will stop
Every £250 over £6,000 counts as if you had £1 of weekly income.
If you are above State Pension age
If your savings are:
- under £10,000, your benefit claim is not affected by your savings
- between £10,000 and £16,000, you lose some of your benefit payment
- more than £16,000, your Housing Benefit will stop
If you claim Housing Benefit jointly with someone who is below State Pension age, the working age savings limit of £6,000 applies before it affects your claim.
If you get Housing Benefit and Pension Credit guarantee credit, you can have more than £16,000 in savings without it stopping your claim.
Pension Credit
If your savings are:
- under £10,000, your Pension Credit is not affected by your savings
- more than £10,000, you lose some of your Pension Credit
Every £500 you have over £10,000 counts as £1 of weekly income.
Backdated benefits
If you get a lump sum in backdated benefits, this does not count as savings for 1 year.
You may have longer with backdated benefits of £5,000 or more if they were compensation for an official error or point of law. If you are unsure, seek advice.
Last reviewed by Scope on: 23/10/2024
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