Financial protection

In this chapter we will look at the State benefits that are currently available, the eligibility criteria and the tax implications of receiv...

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...er we will look at the State benefits that are currently available, the eligibility criteria and the tax implications of receiving benefits.

State benefits are designed to provide a very basic level of support for individuals who are:

Unemployed and looking for work

On a low income

Bringing up children

Retired

Caring for someone

Unable to work due to sickness

Disabled or incapacitated

It i...

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...over-estimate the benefits they would receive from the state; therefore, the adviser should be able to provide the relevant information to enable the client to make informed choices.

What are State benefits intended to provide?

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Income support may be paid to anyone who is over the age of 16 and has not reached state pension age and is working less than 16 hours per week - making them ineligible for the working tax credit - if they can show they are taking reasonable steps to secure employment and are not eligible for Jobseeker’s Allowance or Employment and Support Allowance (ESA). It...

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...cess to other benefits such as housing benefit, council tax benefit, free prescriptions, free dental treatment and free school meals.

Income Support is no longer available to new claimants, who instead must make a claim for Universal Credit.

List some of the other benefits that receipt of income support gives access to.

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This benefit is in two parts – income based and contribution based. The ‘new style JSA’ is a contribution-based benefit, with payment being  dependent on the payment of sufficient NICs. It is not means-tested but payable for a maximum of six months. After this time, if the claiman...

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...ntitled)

Under retirement age

The amount paid to the claimant is age-related and is in two tiers: those aged 16-24 receive one amount and those 25 and over receive a higher amount.

After what period does the Jobseeker's Allowance become means- tested?

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Child Benefit is paid to people responsible for children (by birth, adoption or fostering) under the age of 16 or aged under 20 if they are in full-time education. It can begin as soon as a child is born and is payable at a flat weekly rate. It is not dependent on any NICs being paid by the parent and is not means-tested. There is a payment rate for the first child and a lower rate for subsequent children. The amounts received a...

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... at least £60,000 the tax charge will mean that the Child Benefit will be fully used by the tax charge. The benefit can still be claimed and received by the primary caregiver, but the higher earner will suffer the additional tax charge.

Sylvia has never paid National Insurance Contributions. Is she eligible to receive Child Benefit for her three month-old baby?

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Prior to April 2017, there were three benefits available.

Bereavement payment

A spouse or civil partner would  receive a tax-free lump sum of £2,000 on the death of their spouse, if the deceased had made sufficient NI contributions or their death was caused by their employment. The recipient of the payment had to be under State pension age or the deceased must not have been entitled to a State pension at the date of death.

 

Widowed parent’s allowance

This is a taxable benefit payable to a spouse or civil partn...

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...months after the partner’s death.

The benefit is paid regardless of age and continues if the claimant remarries or starts to co-habit. It is paid tax-free and is not included in the assessment of income for the benefit cap or the calculation of income-based benefits. It also does not affect a claimant’s entitlement to contribution-based Jobseeker's Allowance or contributory Employment and Support Allowance.

How long do the instalments of the Bereavement Support Payment continue for?

.

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This benefit is paid by the employer to employ...

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...tate depending on the amount of NICs they pay.

Evidence shows that people are better off in work, not only financially but in terms of their health and well-being, their self-esteem and the future prospects for themselves and their families. The Government wanted to change the focus of support for individuals with long- term illness or disability to encourage them back to work rather than being paid not to work. On this basis, Employment and Support Allowance was introduced to replace Incapacity Benefit and Income Support that is paid because of an illness or injury for new claimants from 27 October 2008.

It provides personalised support and financial help...

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...s will depend on periodic medical assessments.

The income based ESA payments are being replaced by Universal Credit.

Points to consider for financial planning

It is a complex benefit which has a dedicated section on the Government  website at: www.gov.uk/employment-support-allowance

Initial and ongoing eligibility will depend on various factors, not solely related to the claimant’s state of health

What is the difference between the focus of Incapacity Benefit and Employment & Support Allowance for people with long-term illness or disability?

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NOTE : Personal Independence Payment has replaced Disability Living Allowance from June 2013 and is covered in the next section. However, due to the long-term nature of some conditions, many claimants of disability related benefits are still claiming and receiving Disability Living Allowance. At some point they will have to make a claim for Personal Independence Payment instead and there is no guarantee that they will have an automatic entitlement to receive it.

This is a tax-free benefit for people under 65 who need assistance in their daily lives in terms of personal care, mobility or...

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...eceive free personal care or local authority assistance. This does not apply where claimants require nursing care or are self- funding.

Points to consider for financial planning

It is paid tax free

It is not dependant on the claimant’s NIC record or their financial circumstances

The care element will be suspended or cease if the claimant moves into a hospital or long-term residential care funded by the state or local authority (for more than four weeks)

When would payment of the care component be suspended for claimants in England?

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This new benefit was introduced by the Welfare Reform Act 2012 and in June 2013 it replaced Disability Living Allowan...

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...m the individual and healthcare professionals. This involves a consultation with a trained independent assessor.

This is a taxable, non-contributory benefit available to people who look after someone who is disabled.

Eligibility

The carer must be looking after someone who receives Attendance Allowance, Personal Independence Payment or Disability Living Allowance 

They must provid...

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...gibility; however, it is reduced by the amount of certain other benefits (including State pension) received by the claimant

What benefits must the disabled person be receiving for a carer to be eligible to claim Carer’s Allowance?

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Attendance Allowance is a tax-free benefit for people aged 65 or over who have care or supervision needs because they are physically or mentally disabled.

Eligibility

Payable to people who are at state pension age or over and who have needed assistance for at least six months

It is paid at two levels, a higher rate where care is nee...

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...lly ill where they do not have to meet the six months criteria and they will automatically receive the higher rate of benefit.

For the past six months, Fred has needed help to move around and for personal care during the day and at night. Which level of Attendance Allowance would he be entitled to claim?

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Prior to 6 April 2018, homeowners on low incomes who qualified for certain income related benefits may also have qualified for help towards their mortgage interest payments. From 6 April 2018, the system changed and the benefit has been replaced with the ability to apply for a loan, with those already receiving the benefit being transitioned onto a loan-based arrangement....

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...nless essential to make the property fit for habitation, and interest on arrears is also excluded.

Those in receipt of Pension Credit can also apply for a loan and while there is no waiting period, the amount is restricted to mortgages up to £100,000.

When is a loan obtained under Support For Mortgage Interest fully repaid?

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Housing Benefit is a means-tested benefit available to assist with housing costs for those in rented accommodatio...

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...tting is a private arrangement and directly to the landlord if they are a local authority or housing association.

Child Tax Credit (CTC)

This benefit can be claimed by a single person or couple who are responsible for a child aged under 16, or between 16 and 19 if they are in full-time education. It is paid in addition to Child Benefit and any Working Tax Credit that might be received. Payments are made either weekly or four-weekly to the person responsible for the children.

Fr...

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...lso be paid to those over 16 who have a disability and to some people over age 50 who meet certain conditions.

It is a means-tested benefit and is progressively reduced once income exceeds a stated level. It is paid directly from HMRC for those both employed and self-employed.

Which Government department administers tax credits?

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The Welfare Reform Act 2012 created several changes to the benefit system in 2013.

Benefit Cap

Since April 2013, a benefit cap has imposed a maximum amount of benefit that a household can receive and applies to the total income from the main unemployment benefits, housing benefits, child benefit and child tax credit. Initially it will be applied by local authorities making a deduction from housing benefit, but in the longer term this will be applied through...

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... a new job or increase part-time hours. A link to the HMRC’s PAYE system will automatically pass information about earnings to their Universal Credit account. Out-of-work claimants will have to accept a claimant commitment with harsher sanctions than currently exist, with exceptions existing in a various categories. A new development means that the claimant commitment will also apply to working claimants. Receipt of this benefit will affect Pension Credit claims.

The State pension provision has changed significantly with effect from 6 April 2016. The old system of a basic pension and additional benefits from other top-up schemes has now been replaced by a new ‘single-tier’ pension for all new claimants. Individuals who reached State pension age (SPA) before 6 April 2016 are unaffected. Anyone retiring after 6 April 2016 who has built up entitlement under previous schemes to an amount greater than the new pension will be entitled to a ‘protected payment’ on top of the new scheme. This will ensure that no-one is disadvantaged by the new system.

The amount of new pension that will...

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... is now only possible to receive any new State pension entitlement once the individual has a ten-year contribution/credit record. Those with qualifying years between the two will receive a proportionally smaller new State pension amount.

The new pension will increase at least in line with the ‘triple lock’ guarantee that also applies to the basic State pension, i.e. it will increase each April based on a triple guarantee of whichever is the highest (for the twelve months ending in the September of the preceding the tax year) between earnings growth,  price inflation (as measured by the Consumer Prices Index (CPI)) or 2.5%.

The State Pension Age (SPA) was 65 for men and - until 5 April 2010 - it was 60 for women. Since April 2010, the SPA for women started being increased gradually from 60 to 65 for those retiring between April 2010 and 2020 and was equalised with...

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...ch will affect anyone born between 6 April 1970 and 5 April 1978. A further review will be carried out in July 2023.

When was the State Pension Age for women first equalised with that set for men?

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Over the years there have been various additional State pensions designed to supplement the Basic State Pension. The details have changed several times but they have all been based on the principle that the benefits provided should be linked to the level of National Insurance contributions paid or the earnings on which they were based.

State Graduated Pension Scheme

The State Graduated Pension Scheme (SGPS) was the first State scheme designed to provide an additional earnings-related State pension to supplement the basic State pension, and entitlement to it was built up between April 1961 and April 1975. From 2011/12 SGPS in payment rises in line with the CPI. Prior to this, payments rose in line with the RPI.

State Earnings Related Pension Scheme ...

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...asic State Pension but were could either pay a reduced rate of NI contributions (if they were members of an occupational pension scheme) or receive a rebate on the full rate of NI they paid, which was paid into their own personal pension arrangement.

 

The introduction of the new State pension means that anyone now reaching State Pension Age will receive this calculated to include an element based on any previous SERPS and / or S2P entitlement (the ‘protected payment’). They will also receive a potential reduction in the amount received for the time spent contracted-out.

 

It is not possible to contract out of any element of the new pension.

State the original aim of the State Second Pension.

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The State provides some death benefits to surviving widows, widowers and civil partners, depending on when the deceased reached state pension age.

Whether an individual will qualify for any death benefit in respect of the State pension scheme...

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...cord and be able to inherit an element of additional top-up scheme benefits. Where both partners reach State Pension Age after 6 April 2016, the only entitlement that can be passed on is 50% of any ‘protected payment’ that exists.

In April 1999, the Government introduced the Minimum Income Guarantee (MIG). Having been criticised for reducing the incentive to save for retirement, the MIG was replaced by The State Pension Credit (SPC) on 6 October 2003.

Both benefits were intended to fight poverty by guaranteeing a minimum income for those in retirement. The SPC is also designed to reward people for making some retirement provision of their own rather than relying entirely on the State.

The savings credit was withdrawn with the introduction of the single-tier State pension, though it remains available under transitional rules for those who meet the eligibility requirements ...

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...to the guarantee credit but it can increase entitlement to the savings credit. As with income, some capital is included in the pension credit calculation and some is not. Capital that is included is:

Cash, including money held in a bank or building society account or premium bonds

Investments, such as shares, unit trust holdings etc. Investment bonds, however, are excluded

The net value of land and property excluding the individual/couple’s home and property

Explain how the State Pension Credit rewards a single person who has managed to accumulate some level of savings towards their retirement.

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When considering a client’s protection requirements and the type of protection produc...

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...ts can be undertaken.

See this summary of State benefits PDF (opens in a new window) .

This revision test (opens in a new...

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... test will be added to your CPD certificate.