Full-time workers in the UK are exploiting a legal loophole in the Universal Credit (UC) system to receive thousands in benefits. Workers claim thousands in benefits by paying large portions of their salary into private pensions, thereby legally reducing their declared income and becoming eligible for higher state support.
This pension loophole in Universal Credit is causing concern among welfare officials and taxpayers alike. Under current rules, pension contributions do not count as earnings when calculating UC entitlement. As a result, individuals earning well above the threshold can still receive substantial government support, and some workers claim thousands in benefits because of this legal gap.
In one case, a woman with a £26,000 salary contributed nearly all her income to a pension. Her reported earnings dropped to £80 per month. Over 18 months, she received an average of £925 per month in UC. This is more than someone on the national living wage might receive. Such cases exemplify how workers can claim thousands in benefits under current regulations.
Government insiders confirmed that pension loophole in Universal Credit claims have emerged in centres across the UK. Despite concerns, ministers have not taken action to change the legislation. Officials say the current rules were designed to encourage pension saving for low-income earners. Consequently, workers continue to claim thousands in benefits under these unchanged laws.
However, the Department for Work and Pensions (DWP) acknowledges the rules are now being misused. A spokesperson insisted the system prevents people from “deliberately depriving themselves of earnings.” Still, in practice, caseworkers often manually adjust earnings and approve higher payments.
The total UK welfare bill, excluding pensions, is projected to reach £162.9 billion this year. That’s nearly three times the size of the defence budget. With health and disability benefits alone set to exceed £70 billion, the system is under major strain.
Labour ministers have focused on cutting disability support to reduce costs. But more than 50 backbench MPs are prepared to rebel over the changes. Many argue these reforms punish the most vulnerable while loopholes remain unchecked.
Helen Whately, the shadow work and pensions secretary, criticised the government’s approach. She argued that “topping up private pensions” with taxpayer funds was deeply unfair. She called for comprehensive reform, not piecemeal adjustments.
Work and Pensions Secretary Liz Kendall defended recent cuts, saying they aim to encourage employment. Yet critics believe real reform must address deeper structural issues, including the pension loophole in Universal Credit.
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