The benefits sanctions regime helps encourage welfare claimants into work but there have been "cases where we got it wrong", the Cabinet minister responsible for the system said.
Work and Pensions Secretary David Gauke was challenged about the impact of sanctions, which have been blamed for forcing some of the poorest in society into debt and leaving them at risk of homelessness.
Mr Gauke said the regime encouraged claimants to change their behaviour and was designed to get people into jobs - and stressed that people with mental health problems could be helped by the structure of being in work.
Sanctions involve the reduction or suspension of payments because a claimant has not met conditions for receiving the benefit, such as attending jobcentre appointments.
"We have a welfare system that is based on conditionality, and rightly so. We pay money to people but there are certain conditions that are in place," he told the BBC's Andrew Marr Show.
"In some cases where those conditions are not met, it is appropriate to have a sanction. If you don't have sanctions, essentially you don't have conditionality and you don't change behaviour."
He added: "One of the reasons why I think we have got higher levels of employment is because we place conditions on people, that changes behaviour and that helps people get into work.
"That's not to say that there aren't hard cases, cases where we get it wrong, we want to work very hard to eliminate that.
"But I would defend the principle of saying - if we are going to give money to people, to actually lift people out of poverty on a sustainable basis - it's not just about giving them money, it's also about saying 'what can we do and what can you do to get you into work'."
Experts from bodies representing psychologists, psychotherapists, psychoanalysts and counsellors have previously warned that sanctions system could damage the mental health of claimants.
But Mr Gauke said: "On the subject of mental health - and this is a sensitive point, and I'm not going to pretend that we have always got this right in every individual case - but we do know that getting people into work, giving people the benefit of working, the structure that provides, the self-esteem that that provides, work can really help mental health as well and we shouldn't pretend otherwise."
He added: "The task for us is to ensure that we have an increasingly personalised welfare state, a system that properly understands the circumstances individuals are in. That is a challenge for us and I fully accept that.
"But the idea of walking away from conditionality in the benefits system - which is what those who advocate getting rid of sanctions are essentially advocating - I think would not only be unfair to the taxpayer but also unfair to a lot of claimants because it is that conditionality that helps change behaviour and helps get people into work."