Over two million families have been hit by DWP Universal Credit savings limit

Universal Credit claimants are facing severe penalties under current Department for Work and Pensions (DWP) rules that slash benefit payments for those with savings above certain thresholds—forcing many struggling families into further hardship.

According to a revealing report titled Saving Penalties the system is set up to cut benefits for anyone holding more than £6,000 in savings, with total loss of entitlement if savings rise above £16,000.

DWP Universal Credit: denying over one million families support

Between 2020 and 2022 alone, around two million families who should have qualified for DWP Universal Credit based on their income found their claims slashed or completely wiped out because of these punitive capital thresholds.

Out of those, approximately 830,000 families faced partial cutbacks, while a staggering 1.2 million families were denied any Universal Credit support whatsoever due to their savings.

This approach by the DWP directly hurts people already making tough decisions about managing their finances. Molly Broome, senior economist at the Resolution Foundation, said:

Benefits are means-tested on both income and capital. But the long-term neglect of the capital rules in Universal Credit means they are now undermining wider Government efforts to encourage low-income families to save.

Broome went on to highlight that valuable schemes aimed at helping poorer families build financial security—such as Help to Save and Lifetime ISAs—are strangely left out of the government’s exemption list. This means people actively trying to do the right thing by putting money aside are instead penalised for prudent saving.

She argued;

Important schemes such as Help to Save and Lifetime ISAs should be exempted from these capital rules so that families doing the right thing by saving into them aren’t penalised for doing so.

Inflation has compounded the problems

The problem is made worse because the DWP has not adjusted the Universal Credit savings thresholds for inflation.

Figures show that while only 35% of UK families had savings over £6,000 between 2006 and 2008, this has jumped to nearly half the population (45%) by 2020-22. If the limits had been properly indexed to inflation, the thresholds would have risen to over £10,000 and £27,000 respectively, sparing many from losing vital benefits due to modest saving efforts.

In its current form, the system creates sharp “cliff edges” where a tiny increase in savings can result in sudden and severe withdrawal of financial support.

For example, a family entitled to £750 a month in DWP Universal Credit based on income alone would see their payments reduced to £576 if they had savings of exactly £16,000. But if their savings rose by just one penny above that figure, their entitlement would vanish completely.

DWP Universal Credit: catastrophic cliff edges

This draconian penalty system contradicts the official aim of DWP Universal Credit, which promised to smooth out such cliff edges and provide a more compassionate safety net for those struggling.

The Saving Penalties report exposes the DWP’s failure to keep benefit rules fair and up to date, effectively forcing low-income families to choose between safeguarding their financial future and receiving essential support to meet day-to-day living costs.

With millions caught in this no-win scenario, it is clear the government must urgently reconsider the capital rules within DWP Universal Credit to prevent punishing vulnerable people for saving what little they can.

All this comes at a time when many families rely on DWP Universal Credit just to get by.

The DWP’s stubborn refusal to adjust outdated savings thresholds and exemption lists risks undermining efforts to boost financial resilience among the most disadvantaged in society, leaving them facing impossible choices and unnecessary hardship.

Featured image via the Canary