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 basic level of support for individuals who are:

Unemployed and looking for work

On a low income

Bringing up children

Of State pension age

Caring for someone

Unable to work due to sickness

Disabled or incapacitate...

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... or 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 is a legacy benefit, not available to new claimants, who must claim Universal Credit. It may continue to be paid to some legacy claimants who:

Are not in full time education (with some limited exceptions)

Have low income and savings of not more than £16,000

Work less than 16 hours per week (or, if...

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...p>Generally Income Support is a tax-free benefit but there are circumstances in which it is taxable, such as where the claimant is on strike or involved in a trade union dispute and is one of a couple.  

An individual will be unable to receive Income Support if already receiving:

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JSA was the main benefit for those not in work but actively seeking work. Previously available in two forms, ‘income-based’ JSA has been replaced by Universal Credit for new claimants and many legacy claimants. ‘New style JSA’ is a contribution-based benefit, with eligibility depending on the payment of s...

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...ed under 18 cannot normally claim JSA) age

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

Eligibility for ‘new-style’ Jobseeker's Allowance primarily depends on:

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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. Payment 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 at the point a claim is made (refer to note on high income tax charge below). There are two different payment...

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...of at least £80,000 the tax charge will mean that the Child Benefit will be fully clawed back through the tax charge. The benefit can still be claimed and received by the primary caregiver, but the higher earner will be subject to the 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, three benefits were available to assist the bereaved:

Bereavement Payment

Widowed Parent’s Allowance

Bereavement Allowance

This system has been replaced by the Bereavement Support Payment (BSP). BSP can be claimed by the partner of a deceased person, where the claimant was married to, a civil partner of or co-hab...

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...ulation of eligibility for income-based benefits. It also does not affect a claimant’s entitlement to ‘new-style’ Jobseeker’s Allowance or ‘new-style’ Employment and Support Allowance.

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

.

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This benefit is paid by an employer to employees who are off work...

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...ect to income tax and NICs as if the income paid had been earned.

Evidence shows that people are better off in work, not only financially but in terms of their health and wellbeing, their self-esteem and the future prospects for themselves and their families. ESA  aims to enable those who are currently unable to work due to illness or disability to return to work.

As with JSA, ESA was traditionally paid in one of two forms, income-based and contribution-based. The income-based form of ESA has been replaced by Universal Credit. What was contribution-based ESA is now referred to as ‘new-style’ ESA, it isn’...

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...ts their ability to work

They are under State Pension age

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 Statutory Sick Pay and Employment & Support Allowance for people who are unable to work due to illness or disability?

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NOTE: For new working age claimants Personal Independence Payment (PIP) replaced Disability Living Allowance (DLA) from April 2013 for working age claimants, this is covered in the next topic. However, due to the long-term nature of some conditions, many current claimants of disability related benefits, including all those aged under 16, are still receiving DLA rather than PIP.

DLA is a tax-free benefit for people aged under State pension age who need assistance in their daily lives in respect of personal care, mobility or both. The benefit is not means-tested, is tax free and non-contributory; eligibility is based on the degree of disability alone, rather than a claimant’s current financial situation or NIC rec...

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...n four weeks, but the mobility component may continue to be paid. In Scotland DLA will cease after four weeks where claimants receive 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 enters 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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Personal Independence Payment (PIP) was introduced by the Welfare Reform Act 2012 and  replaced Disability Living Allowance for eligible ...

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...ividual and healthcare professionals. This involves most claimant’s being invited to a consultation with a trained independent assessor.

This is a taxable, non-contributory benefit available to people of working age who provides care to someone who is severely disabled.

Eligibility

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

They must...

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...he level of Carer’s Allowance payable 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 above State pension age who have care or supervision needs because they have a physical or mental disability.

Eligibility

Payable to people who have reached their State pension age and who have suffered from a severe disability for at least six months

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

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...he criteria of having suffered severe disability for at least six months and they will automatically receive the higher rate of benefit.

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

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From 6 April 2018, the system of support for those on low incomes who require help with their mortgage costs changed, from a pure State benefit to a loan based system.

The loan is repaid fully with interest when the property is sold, ownership is transferred or on death, of the claimant and, separately, repayments of at least £100 can be made at any time. A promise is given that any amount of...

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...tes to home improvements, unless essential to make the property fit for habitation, and interest on arrears is also excluded.

Where an SMI Loan is claimed by someone in receipt of Pension Credit there is no waiting period and the amount is restricted to interest on up to £100,000 of a mortgage.

When is a Support for Mortgage Interest loan fully repaid?

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Housing Benefit is a means-tested benefit available to assist with housing costs for those in rented accommodation. With Housing Benefit being absorbed within the Universal Credit framework, new claims can only be made ...

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...bedroom tax’.

Payments are made to the claimant (as local housing assistance) if the letting is a private arrangement and directly to the landlord if the landlord is a local authority or housing association.

The Child Tax Cr...

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...ate pension age.

The benefit system has undergone significant change. Many of the benefits covered above are closed to new claimants, with existing claimants being transitioned to Universal Credit.

Benefit Cap

The benefit cap imposes a maximum limit on the amount of certain State benefits that can be claimed by working age individuals.

The cap applies on a per household basis: defined as the individual claimant, their partner and any dependent children who live with them. The cap applies to the total income from the main out of work benefits, Housing Benefit and Child Benefit. Initially the cap is applied by the relevant local authority making a deduction from the level of Housing Benefit payable. Benefits that count towards the cap are:...

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...uples and both categories claiming for themselves and their children and is available to those who are out of work and on low incomes. Most claimants on a low income will continue be paid the Universal Credit when they start 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 which sets out what they have agreed to do, to prepare for and find work. This is drawn up through a conversation with a work coach. . The claimant commitment also applies to working claimants. Receipt of this benefit counts towards the benefit cap and will affect Pension Credit claims.

State pension provision changed significantly with effect from 6 April 2016. The previous system of a basic State pension plus the possibility of additional benefits from other top-up schemes was replaced by a new ‘single-tier’ pension for anyone reaching their State pension age from that date. Individuals who reached State pension age (SPA) before 6 April 2016 are unaffected and continue to receive a basic State pension and any additional State pension they are entitled to. Anyone reaching State pension age after 6 April 2016 who had built up entitlement under previous State pension schemes of an a...

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...personal allowance for income tax, if an individual has enough additional income to give rise to a tax liability, tax will be payable – but it is normally deducted from other pension or earned income.

The new State pension is indexed, increases in payment, in line with the ‘triple lock’ guarantee that also applies to the basic State pension, i.e. it will increase each April based on the highest of earnings growth over the 12 months to the previous July, price inflation (as measured by the Consumer Prices Index (CPI)) over the 12 months to the previous September or a fixed amount of 2.5%.

The State Pension Age (SPA) was 65 for men and - until 5 April 2010 - it was 60 for women. The SPA for women started was equalised with that for men in November 2018.

The Pensions Act 2007 contained legislation to increase the SPA between December 201...

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...for now, the increase to age 67 will take place between 2044 and 2046, the originally planned date, but this will be kept under review.

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

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Whilst the new State pension provides a single element of benefit, previously there were various additional State pensions designed to supplement the basic State pension. The elements of additional State pension evolved over time; the State Graduated Pension scheme was available between 1961 and 1975, the State Earnings Related Pension Scheme (SERPS) was available between 1978 and the State Second Pension (S2P) between 2002 and 2016.

The various elements of additional State pe...

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...nsion. The new State pension has no additional earnings related element. Those who reach State pension age on/after 6th April 2016 having built entitlement to an additional State pension will have any entitlement to additional State pension reflected in the level of new State pension payable; either as an additional amount or, if contracted –out, as a reduction.

It was/is possible to contract-out of which elements of State pension?

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The Bereavement Support Payment can be considered as a State provided dependents’ pension, although only providing a benefit over the short-term.

The various State pensions also provides some death benefits to surviving widows, widowers and civil partners. The nature of benefits depends on when the deceased reached State pension age.

For those who reached State Pension Age prior to 6 April 2016, their surviving ...

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...o inherit an element of additional State pension 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.

Is this statement True or False?

Prior to 6 April 2016 a survivor’s pension from the State could include benefits from additional State pension schemes.

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Pension Credit was introduced on 6 October 2003. There are two elements, the guarantee credit and, for those who reached State pension age before 6th April 2016, the savings credit

The guarantee element of Pension Credit aims to prevent an individual who has reached State pension age struggling in poverty by guaranteeing a minimum income. The savings element aims to reward people for making some retirement provision of their own, rather than relying entirely on the State.

The savings element of Pension Credit was withdrawn with the introduction of...

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... that the savings element of Pension Credit provides a maximum weekly benefit of £17.96 for an individual and £20.10 for a couple (2026/27 rates).

Someone reaching State pension age today is only potentially eligible for the guarantee element of Pension Credit. Someone who reached their State pension age before 6th April 2016 may be eligible for both elements.

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.