Disregard compensation paid to injured service personnel from UC calculation

Introduce legislation to disregard any payments made to ex-service personnel in the form of injury or income compensation from Universal Credit (UC) calculations, no matter in which manner this payment has been paid out (lump sum or ongoing payments) indefinitely.

Some service members and ex-service personnel who are permanently injured lose Universal Credit after 12 months because their Armed Forces Compensation Scheme (AFCS) payments, and War Pensions are treated as capital. We believe this is disproportionate, forcing some families to spend money meant to cover long-term injury, illness, or loss of independence just to survive.

Under current UC rules, AFCS lump sum awards are treated as personal injury compensation under longstanding social security law. As such, they are disregarded as capital for a period of up to 12 months from the date of receipt. This 12 month period is intended to give individuals time to make appropriate arrangements, such as placing the payment into a personal injury trust, purchasing an annuity. Where such arrangements are put in place within that period, both the capital held and any income generated are disregarded indefinitely in UC.

Where the lump sum payment is not placed into one of these arrangements within 12 months, any remaining amount is treated in the same way as other savings and may affect entitlement to UC, depending on the level of capital held. This is not intended as a penalty, nor as a judgment on the service or sacrifice of veterans. Rather, it reflects the established legal framework governing the treatment of personal injury compensation across the benefits system, which applies equally to civilians and service personnel.

It has been suggested that the treatment of AFCS payments should be treated the same way as certain statutory “special compensation schemes”, such as those relating to Grenfell, infected blood or the Post Office Horizon scandal. These schemes are explicitly listed in legislation and are designed to provide redress for specific historic or systemic failures, rather than compensation linked to individual injury. AFCS, by contrast, compensates for injury, illness or death caused by service on the basis of individual assessment. Treating AFCS lump sums as personal injury compensation ensures parity with civilian personal injury awards and aligns with long established principles in social security law.

Reclassifying AFCS lump sum awards alongside special compensation schemes would represent a fundamental policy change with implications beyond Universal Credit. Importantly, such a change is not necessary to protect compensation in practice, as the existing rules already allow for an indefinite disregard where payments are placed into an appropriate trust or arrangement. We understand that such arrangements have now been put in place in this case. We will explore how to make the trust option better known and understood.

Department for Work and Pensions