Resolution Foundation publishes Saving Penalties report on Universal Credit capital rules

The Resolution Foundation published a report in April 2025 examining how capital is assessed in Universal Credit, co-authored by Ed Pybus, Molly Broome and Alex Clegg. The report, "Saving Penalties: Reforming the Capital Rules in Universal Credit", estimated that 2 million families who would have been eligible for Universal Credit on the basis of income in 2020-22 had reduced entitlement because of the capital rules, 20 per cent of the 10 million working-age families with sufficiently low income to qualify¹.

Of those 2 million families, around 830,000 faced a partial reduction and around 1.2 million lost their entitlement entirely. The report found that 12 per cent (240,000 families) had capital between £50,000.01 and £100,000, excluding the property they live in and pension pots, and 16 per cent (315,000 families) held over £100,000. Nearly half, 47 per cent, had capital of £16,000 or less¹.

The same principle applies to Pension Credit, where the amount received reduces if the claimant has more than £10,000 in savings. The rules exclude some assets, notably the home and pensions¹.

The report recommended that the UK Government prioritise targeted reforms that support long-term savings while preserving fairness, such as excluding money saved through Help to Save and Lifetime ISAs from the capital rules and removing the "cliff edge" from the upper capital limit¹.

The analysis did not provide a breakdown by country, but the Resolution Foundation gave a rough estimate that approximately 200,000 families in Scotland may be impacted by the Universal Credit capital rules. In Scotland, some benefits are paid only to people receiving a UK-wide means-tested benefit. Scottish Child Payment is paid to families with children who get Universal Credit or Pension Credit, so a working-age family with savings of more than £16,000 cannot get it regardless of income. Best Start Grants and Funeral Support Payments require receipt of Universal Credit, Pension Credit or Housing Benefit¹.

Council Tax Reduction replaced Council Tax Benefit in Scotland from 2013 and is administered by local authorities. Only Pension Credit passports someone automatically to full Council Tax Reduction; otherwise there is a capital limit of £16,000¹.

Why it matters for households

The capital rules affect entitlement to means-tested support based on savings as well as income. For those over pension age, Pension Credit begins to reduce above £10,000 in savings. The home and pension pots are excluded from the assessment¹.

The effects extend beyond the benefit itself. Because Scottish Child Payment, Best Start Grants and Funeral Support Payments depend on receipt of a qualifying UK means-tested benefit, a family above the capital limit can lose access to those payments even on a low income. Council Tax Reduction in Scotland has its own £16,000 capital limit unless the claimant is passported through Pension Credit¹.

The report notes that some families reach the thresholds through a drop in income, a modest inheritance, a house deposit, benefit arrears or compensation payments, or transfer from Tax Credits, which had no capital limits¹.

What happens next

The report recommended targeted reforms to the UK Government: excluding Help to Save and Lifetime ISA money from the capital rules and removing the cliff edge at the upper capital limit¹. In Scotland, the Social Security (Amendment) (Scotland) Act 2025 provides for amendment of the Social Security (Scotland) Act 2018 to create a new type of assistance, "childhood assistance", which would allow payments to families not entitled to Universal Credit or Pension Credit, and so potentially to families with low incomes but capital above the limits¹. The Resolution Foundation said more Scotland-specific research is needed to understand the effect of the capital limits, and that any changes to Council Tax Reduction would require updates to each local authority's systems and could not be implemented quickly¹.