Low-income savers are being wrongly stripped of thousands of pounds for paying into a pension, an investigation by The Mail on Sunday and This is Money has found.
Vulnerable people who have made payments into private pensions have seen their Universal Credit payments slashed due to blunders by Government workers in a string of cases.
In one, a 55-year-old nursery worker has been underpaid £4,500 over the past five years, while in another an autistic train station assistant has been unfairly denied £2,600 since last autumn.
Under a little-known rule, anyone on Universal Credit should have any pension contributions they make deducted from their income when their entitlement is calculated - which could make them eligible for more benefits.
Some may be surprised to hear that taxpayer-funded payments for those on benefits should leave enough for claimants to save extra into private pensions, rather than cover just the basics.
But the Government does this as an incentive for those on low incomes to save towards their retirement.
However, some frontline staff at the Department for Work and Pensions (DWP) are wrongly refusing to deduct contributions to private pensions, leaving claimants trying to provide for their future retirement, shortchanged by hundreds and sometimes thousands of pounds.
Universal Credit: Claimants should have any pension contributions they make deducted from their income when their entitlement is calculated
Universal Credit is a benefit paid to working age people who are on a low income, unemployed or cannot work due to illness or disability.
Standard payments for over-25s are £424.90 a month if you are single or £666.97 for a couple.
You can earn up to £710 a month, or up to £427 if you get help with housing costs, before your payment starts to reduce by 55p for every £1 you earn from working.
It means that if you put £100 into a pension, not including any tax relief, you should generally get £55 more in Universal Credit.
When people pay into a work pension scheme, details are sent automatically to the DWP, but problems have arisen when they pay into a private pension and report this directly to Government staff.
Former Pensions Minister Steve Webb, who was involved with our investigation and is a partner at consultancy LCP, says: 'This is deeply frustrating for those who are paying into a pension and have a right to have these contributions deducted.
'The number of cases unearthed by The Mail on Sunday and This is Money suggest this is not an isolated issue.'
Complaint hit dead end
In one case a mum was wrongly rebuffed where she tried to declare her autistic son's private pension contributions on his Universal Credit 'journal' - an online tool which shows payments and lets you report changes.
Jane Collins, a 61-year-old retired financial administrator from Essex, says 27-year-old John secured a job as a station assistant last autumn and started paying into a pension.
However, as he is earning around £1,800 a month, he still qualifies for Universal Credit.
Jane - not her real name - says: 'We did not know if my son would ever work, but last September he got this job, which is incredible. We are really proud of him.'
She added that John has paid any spare money into his pension, saying: 'That is important.
He hasn't paid into a pension until now so it's later than other people. When he gets to retirement age, we are unlikely to be here to support him and no one knows what state pension provision will be then.'
When Jane reported John's pension contributions to the DWP, she reached a dead end.
In journal messages seen by the MoS and This is Money, staff denied point-blank that they could be deducted from his salary when his Universal Credit was calculated.
Staff only accepted their error when Steve Webb took up the case, and agreed that John had been shortchanged by £2,600.
Not an isolated case
A nursery worker from London also hit a brick wall when she tried to report her pension payments.
The 55-year-old had made personal pension contributions for more than three decades, and continued doing so after starting to claim Universal Credit in late 2021.
She began questioning whether her contributions should be taken into account in spring 2025.
Staff told her they weren't relevant, and when she persisted agreed to investigate further, but then failed to get back to her.
After she contacted Webb for help a few months ago, she was paid £4,500 in arrears.
A hotel housekeeper aged 65 from Birmingham, who has dyslexia and is suffering from poor health, made several requests to her JobCentre Plus to take her pension contributions into account when calculating her Universal Credit.
But these were repeatedly refused, with her work coach telling her they had 'checked this out with the earnings team' and 'this is how Universal Credit works'.
After that, her work coach then blocked her from uploading proof of her pension contributions to her journal.
When we flagged her case, her entitlement was recalculated and she was paid £670 in arrears.
What does the DWP say?
After the Mail on Sunday approached the DWP, it issued apologies, paid arrears and confirmed that it has reissued guidance to staff.
A spokesman said: 'While these cases represent a tiny proportion of overall claims, we recognise the impact the errors have had.
We have apologised and corrected their payments. There is no evidence to suggest a wider issue, but we are reviewing the available information and have reissued guidance to staff.
'In the meantime, anyone who believes their Universal Credit award may not correctly reflect their personal pension contributions should raise a query through their journal.'
Steve Webb, who is This is Money's pensions columnist, says: 'We have been repeatedly told DWP staff have been given better training on this issue, yet time and again both frontline staff and supposed backroom experts are giving duff information.
'This issue needs a proper investigation rather than being dismissed as a series of unconnected one-off cases.'
Sarah Coles, head of personal finance at AJ Bell, says: 'Given that your Universal Credit is cut by 55p for every £1 you earn over the work allowance, if you can pay £100 into your pension, you could get a 20 per cent top-up from the taxman, and £55 more in Universal Credit.'
Are YOU affected? Contact pensionquestions@thisismoney.co.uk
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