The transitional element in practice

Owen Stevens examines information provided by DWP in response to concerns expressed by advice organisations about the approach being taken to the calculation of the transitional element for claimants managed migrated to universal credit (UC).

DWP guidance setting out an unexpected approach to calculating the UC transitional element, combined with repeated case examples of unexpected outcomes to the transitional element calculation, had prompted concerns that large numbers of claimants may have been being overpaid, potentially by a very large amount, or underpaid.1Those concerns appear, according to information on the Rightsnet discussion forum, to have prompted Citizens Advice to instruct its advisers not to carry out calculations for people being migrated to UC, pending further clarification from the DWP. The DWP has since held a meeting for stakeholders to explain its approach to the calculation, answering some questions and taking others away to be answered later – information shared at that meeting has informed this article.

The DWP has consistently stated that people financially worse off at the point of managed migration will be transitionally protected. For example:

Primary legislation provides for a UC award to be not less than the amount to which the claimant would have been entitled in their legacy benefits, or not less than that amount by more than a prescribed amount (Schedule 6 of the Welfare Reform Act 2012).

The calculation of the managed migration transitional element is set out in regulations 52 to 55 of the Universal Credit (Transitional Provisions) Regulations 2014 No.1230 (‘the TP Regulations’). The transitional element process could be described as having four stages:

The total legacy amount is the sum of the legacy benefits to which the claimant is entitled on the migration day, the day before they transferred to UC (regulation 53 of the TP Regulations). The representative monthly rate of each legacy benefit is based on the information held by HMRC and/or DWP on the day before their UC claim.

The indicative UC amount is ‘the amount to which a claimant would be entitled if an award of universal credit were calculated in accordance with section 8 of the Welfare Reform Act 2012 by reference to the claimant’s circumstances on the migration day’, subject to various assumptions. The indicative UC amount is ‘to be based on the information that is used for the purposes of calculating the total legacy amount, supplemented as necessary by such further information or evidence as [DWP] requires’ (regulation 54(1) and (7) of the TP Regulations).

Assumptions built into the calculation of the indicative UC amount can mean that the resulting transitional element may be either higher or lower than might otherwise be expected. These assumptions broadly relate to the following:

Guidance, obtained through freedom of information (FOI),4See ‘Calculating the transitional protection top-up payment V10.0.pdf’ at whatdotheyknow.com/request/guidance_on_indicative_universal. More up-to-date guidance has since been released, although the process is not quite so clear in the more recent version of the guidance (perhaps due to the automation of aspects of the process, meaning that guidance no longer needs to be so detailed) – see ‘Manually calculating the transitional protection top up payment.pdf’ at whatdotheyknow.com/request/calculating_transitional_element appears to suggest that the DWP is calculating the transitional element in ways that CPAG and others had not anticipated. CPAG and others had been concerned that the DWP’s unanticipated approach may have been leading to large overpayments. However, the DWP has told stakeholders that it has sought legal advice and that the approach set out in guidance is correct, and overpayments are not arising. The department has not yet made any public comment on this issue and it must remain possible that the DWP could change its position in future. The DWP also stated that it is considering amendments to regulations to clarify their meaning, without changing the intent – although no decision had been made at that time.

The DWP told stakeholders that:

The consequence of this is that claimants being managed migrated to UC and not receiving HB or CA in the circumstances above will have an indicative UC amount which underestimates – sometimes by a large amount – the eventual UC award they will actually receive. These people are therefore much more likely to get a transitional element or to get a higher transitional element – even if they would be better off on UC without a transitional element.

This principle may also apply in other situations. For example, someone receiving a legacy benefit (eg, working tax credit), but not – for whatever reason – receiving child tax credit (CTC) on the day before they claim UC (despite their circumstances suggesting that they would receive CTC if they were to claim it) may not have child elements included in the indicative UC amount even though they would expect to have child elements included in the actual UC award. This may also work in the favour of some people that could expect to have a limited capability for work (LCW)5If the claimant is a person in respect of whom the LCW element has not yet been abolished. or limited capability for work-related activity (LCWRA) element included in the calculation of their UC award – for example, someone with national insurance credits on the basis of LCW or someone who would be treated as having LCW or LCWRA and would receive an appropriate element from their first assessment period. Although the DWP’s position works in the favour of some claimants it also appears to:

Alfie is receiving CTC. He pays rent but, as he has £50,000 in savings, he does not receive HB. He receives a migration notice. His savings above £16,000 will be disregarded due to the transitional capital disregard and so he will not be excluded from receiving UC due to his savings. When the DWP works out Alfie’s transitional element, his indicative UC amount does not include a housing costs element, because he was not receiving HB on his migration day. This means that his indicative UC amount is an underestimate of the amount of UC he is actually likely to be awarded, because his actual UC award will include a housing costs element. As a result of his indicative UC amount being lower than his total legacy amount, Alfie will receive a transitional element. Alfie would be better off on UC even if he weren’t to receive a transitional element – because he will start to receive help with his rent, which he did not previously receive – but he will receive a transitional element in the calculation of his UC award anyway.

CPAG has seen a number of cases in which unearned income had been missed out of the calculation of the indicative UC amount. This has especially been the case for unearned income which does not count as income for tax credits. This has the effect of inflating the indicative UC amount so that it is an overestimate of the actual UC award likely to result from the claim – making the claimant much less likely to receive a transitional element, or to receive less of a transitional element than should be the case.

CPAG had been concerned that may have been caused by the DWP misreading the regulations, but the DWP has told stakeholders that income which is not counted as income for tax credits but would count as income for UC should be counted as income for the purposes of the indicative UC amount – so it seems that any failures are the result of mistakes. Advisers should pay particularly careful attention to the transitional element calculation in cases involving income which does not count as income for tax credits but does count as income for UC.

Examples of income which are not counted as income for tax credits but which do count as income for UC include Industrial Injuries disablement benefit, maternity allowance, severe disablement allowance, assumed yield from capital (often known as tariff income), most student income,7Students should also have regard to the timing of their migration – they may end up worse off if they migrate on a date which would mean that the long vacation for their course means that student income would not be included in the indicative UC amount. and some kinds of maintenance from an ex-partner.

Bobbie receives CTC and has student income. Bobbie receives a migration notice in the summer term of the academic year. Bobbie claims UC immediately as she is aware that if she claimed closer to the deadline she would be claiming during her university’s long vacation. Because she claimed earlier, she should have her student income counted as unearned income in the calculation of her indicative UC amount. If she had claimed during the long vacation, then the student income would not have been included as unearned income in the calculation of her indicative UC amount. When Bobbie receives her UC award notification, she realises that she is worse off as a result of managed migration and has a much lower transitional element than expected. It is unclear why this is. As she has not been provided with an explanation of the calculation, she asks the DWP for a breakdown of the transitional element calculation. Once Bobbie receives the breakdown, she realises that the DWP has mistakenly omitted her student income from the calculation of her indicative UC amount – this meant that her indicative UC amount was an overestimate of the UC she would eventually be awarded. She asks for a revision of her UC award on the basis that her transitional element was incorrectly calculated. The DWP subsequently revises the award.

Some people will be worse off in cash terms at the point of their managed migration to UC, despite the policy intent that this would not happen.

Parents of children who are absent from their household is one group likely to be affected. Parents in specified circumstances are able to receive CTC in respect of these children, but would not receive a child element in respect of the same child in the calculation of their UC award – for example, the parent of a disabled child who, due to their disability, cannot be educated locally and so attends a residential school equipped with the appropriate facilities to enable the child’s education. In this example, the parent would have a child element included in the calculation of their indicative UC amount,8Because of the assumption at reg 54(2)(a) TP Regs. making the indicative UC amount an overestimate of the actual UC award likely to result from the claim – this makes the parent much less likely to receive a transitional element.

People newly benefit capped, or capped to a greater extent, as a result of being managed migrated to UC will be immediately worse off at the point of migration – even if they have a transitional element included in the calculation of their UC award.9See ‘Managed migration – transitional protection’, Bulletin 294, p4

It appears that a person doing employment and support allowance (ESA) permitted work would not have any earned income taken into account for their ESA and so should presumably expect not to have any earned income factored into their indicative UC amount calculation – this could potentially mean that the indicative UC amount is an overestimate of the UC award likely to result from the claim, making the claimant less likely to receive a transitional element.10The DWP’s position is that this will not happen, but it has not provided a reasoned explanation with reference to reg 54 TP Regs as to why not.

Note: This article has been edited to make clear that reg.54 of the TP Regs refers to s.8 of the WRA 2012, rather than to s.8 of the SSA 1998.