It’s not unusual for claims to be declined, delayed or challenged through an appeal process.
And even if someone gets through all of that, the amount of support they’ll receive is likely to be less than they need to pay the bills, let alone maintain the lifestyle they’re used to.
Understanding what state benefits are available to your clients is fundamental to calculating their protection gap and advising them on what cover they need.
But benefits can be complex. It’s difficult enough to keep track of all the different benefits available, let alone the specific criteria that would allow someone to claim them.
There’s a lot to get a handle on. So we’ve put together a quick-start guide to help you.
This looks at some of the most recent developments, provides an overview of the key benefits available and illustrates how people would be affected financially if they had no cover and had to rely on the government.
Listen to Amanda Docherty, Marketing Manager, and Vince O’Connor, Senior Business Development Manager, from Royal London discuss state benefits and what Royal London is doing to help the adviser community.
Hello and welcome to this Royal London protection podcast.
I’m Amanda Docherty, one of the Marketing Managers here at Royal London and I’m delighted to be joined today by my colleague Vince O’Connor, our Senior Business Development Manager.
Vince, good to see you today.
Good to see you too.
So today we’re going to talk about state benefits and, in particular, some of the key issues around this topic and also tell you a bit about what we’re doing to help the adviser community.
So Vince, state benefits. A bit of a hot topic at the moment?
Absolutely Amanda. There have been a couple of things which at the time of recording this podcast have been in the news recently.
If we take, for example, the landmark court ruling where a widowed mother of four was awarded bereavement support despite never being married to her partner. This potentially sets a precedent for co-habiting couples who, under the current law, don’t have the same rights as those who are married or in a civil partnership.
Then we’ve got the topic of Universal Credit which continues to be scrutinized with many people concerned that the roll-out of the programme, expected to be complete by 2023, will have a damaging effect on people.
We think that headlines like these continue to make us aware of how financially vulnerable we are if we need to rely on state benefits when something goes wrong.
Couldn’t agree more Vince. And I think it’s fair to say that the benefits system is pretty complex?
Yes they are. And I know that many advisers listening today often struggle with the fact that state benefits can be an incredibly confusing path to tread.
If we take, for example, eligibility. Just knowing what to claim and when someone can claim it. That can be so difficult to determine because there are a few individual factors that determine whether someone could claim or not. These could be whether they’ve paid enough National Insurance contributions. Some benefits are age-related, so how old they are becomes important. Some benefits are means-tested which means your income, your savings, as well as your partner’s income, come into consideration.
Yes and I know that we’ve had feedback from advisers that they need to have a good understanding of what state benefits are available to their clients because it’s so fundamental to giving advice.
I mean you can’t calculate the protection gap, unless you know what cover and benefits are already in place?
Yes, that’s right but the problem as I see it is that the state benefit system is so complicated. It’s difficult enough to keep track of all the different benefits that are available, let alone, the specific criteria that would allow someone to claim them.
Well, we’ve recently been working on a new sales tool which we think is really going to help with that.
And when we were putting this together, you had some really good insights to share with me. And I thought it would be really helpful for our listeners if we could spend some time talking about a few of those points?
Ok, so to start us off. I know that that not everyone is eligible for state benefits but I didn’t know the application process was as difficult.
That’s right. Employment and Support Allowance, or ESA, replaced Incapacity Benefit almost 10 years ago at the time of recording this podcast. And we do have a lot of data, from the Department of Work and Pensions to show how people have been getting on when it comes to making claims. And this is the benefit you would try to claim if you were off work sick, after any pay from your employer and/or Statutory Sick Pay.
If we take employed people, we know they would claim it after 6 months of incapacity (or 28 weeks technically). In the first six months they’d get Statutory Sick Pay. And remember, self-employed people aren’t entitled to Statutory Sick Pay so they would need to make their claim straightaway.
We thought it was quite an interesting fact that in the last 3 years and 9 months (based on the data provided by the DWP), 3.3 million people have made claims for ESA.
And if you think about it, that’s an amazing statistic. That’s 5% of the UK population who have found themselves in a position where they are off work sick for a significant period of time.
And another interesting fact you told me about is that the application form for ESA is 55 pages long?!
55 pages it is. That might be a great sales idea for advisers to just download a copy of it and show it their clients.
It’s long, it must be fully completed and you have to disclose a lot of information – so how long would that take? We know from our own Income Protection claims that we pay a lot of claims -18% in 2017 - for mental illnesses. What if you’re suffering from depression or a mental illness and you have to fill in a long and complicated application form? Makes you think doesn’t it?
Wow, it really does. And how long does it take for a decision to be made?
Well according to the DWP’s own data - on average about 19 weeks which is almost 5 months.
And again just to repeat, the thing to remember here with ESA is for all those employed people - they’ve already been off work for 6 months before they start to claim for ESA.
Yes, so they’re already going to be feeling the strain financially so can’t really afford to wait that long.
Ok, I’m sure we’re going to have a lot of Mortgage Advisers listening so could you talk a bit about mortgage-related state benefits?
Well, these have changed fairly recently Amanda and we’re talking about SMI or Support for Mortgage Interest – not capital.
Mortgagesupport is now a loan, it’s not a free benefit.
Explain what that means Vince…not free?
Well you have to pay it back Amanda...
What actually happens is when you claim SMI, you’re basically receiving a loan from the government and this would need to be repaid, plus interest, when they either sell their property, transfer it to another owner or when they, or their partner, dies.
The rate of interest used is only 2.6% which is also quite low.
Yes, so does that mean it could be the case if they pay a higher rate of interest to the mortgage lender, then they’ll have a shortfall and still might not be able to cover their payments?
That’s right. There’s also an upper limit of how much somebody could claim and the waiting period for SMI which is now 10 months.
I can’t imagine the take-up of these loans is very high?
Well. The DWP’s own figures say that the number of people accepting loans has ground to a halt in recent months.
But just to add to this Amanda. There has been some good news. There was a bit of confusion about this but the DWP have now made it clear that any income people receive from insurance (such as Income Protection) specifically intended to cover their mortgage would be disregarded when their means tested benefits are assessed.
Well, some good news at last.
So moving on, Bereavement Payments have also changed. Was that just over a year ago?
That’s right. It was about April 2017 and they changed but not in a good way as far as the claimant would be concerned.
Instead of receiving help up to the point where your youngest child reaches adulthood, age 20, and remains in full time education. What now happens is that the government will now only offer support for a maximum of 18 months. Under the old system, an individual could have received a maximum payment of £121,000. Under the new system, the same individual would receive just £9,800.
That really is a massive difference and will have a big impact on families I’m sure.
And can you tell me what’s happening with Universal Credit? I’ve seen a lot about it in the news lately and not all good.
Well this one is complicated. What we do know is that Universal Credit is replacing six existing benefits with a single monthly payment. It’s being introduced in stages across the UK and expected to be fully rolled out by 2023.
Now the intention is to simplify things but there’s been a lot of backlash about it with reported issues around the online application and delays in payments being made. There are mounting concerns that people might be worse off as a result of the new system.
That’s all been really interesting Vince. A lot has been happening then and quite a lot to get handle on.
That’s right Amanda. And I think it’s fair to say that advisers have enough on their plates with seeing clients, compliance, dealing with lenders and insurance companies. And really getting a proper, true understanding of all state benefits is such a difficult job because it’s complicated and so time consuming.
Well, as I mentioned earlier, we’ve created a new sales tool for advisers.
It’s called ‘Stay on track – your quick-start guide to state benefits.’ And this includes some of the points we’ve just discussed but goes a little bit further.
We’ve added some case studies which show the reality of what would happen to someone if, for example their partner died or they became too ill to work, and they then had to rely on the welfare system.
I think advisers will like this guide. The case studies add real context and bring the story to life.
Looking at the ‘what’s available part’ at the back This is where we can quickly find out the headlines about each key benefit. Nice and simple.
Great Vince, glad you think so.
Thanks for taking the time out to record this podcast and helping to put together our new guide. As you would expect this demonstrates why having some protection will lead to a much better outcome.
This is available to download now. All you need to do is visit adviser.royallondon.com. You’ll find it in the protection literature library under ‘state benefits’ and ‘new things,’
That’s right. And that’s us for now. I’ll like to say thank you for tuning in to this podcast and if you’ve got any feedback about what we’ve covered either on the podcast or in the guide then we would love to hear from you.
Thanks for listening,
Goodbye for now!
Do your clients know how long they could cope financially if they were too ill to work? Highlight the shortfall and show them how Income Protection could help.