Bob, 28 is an employed worker in a predominantly stressful job. There are no sick pay benefits available to him other than state benefits and Bob has no protection insurance. Bob typically has to take work home at the weekends to meet important deadlines and he has to manage this with being a husband to his wife and a dad to his 3 very young children.
He works in a big city and he spends a total of around 2 hours every day travelling into the office and travelling home. Recently, friends, family and work colleagues have all noticed a change in Bob’s behaviour and some of them have mentioned it to him.
Bob seems distant, quiet and isolated from any group conversations. He doesn’t want to acknowledge there is anything wrong and doesn’t want to talk about it; not even to his wife Sam. After a few weeks, Bob’s wife makes an appointment for Bob to see his GP.
The GP diagnoses that Bob is struggling with depression and anxiety. The doctor prescribes some counselling and a course of medication. The doctor also recommends that Bob needs to take some time off work. An initial ‘fit note’ for 4 weeks is given to Bob. Bob sends the ‘fit note’ to his employer and officially goes off work sick.
Statutory Sick Pay (SSP) is paid to Bob and he receives it through pay as you earn on the normal day he is paid each month. SSP is paid after being off work sick for 4 or more days in a row which includes non-working days. The current rate of statutory sick pay is £94.25 per week. SSP is only available to employees (not self-employed) and would be paid for a period of up to 28 weeks.
Universal Credit is a payment to help people with their living costs and is paid monthly for most claimants, but twice a month for some people who live in Scotland. Universal Credit provides certain benefits for claimants who are on low incomes or are out of work.
Universal Credit replaces 6 existing means tested benefits which are:
Bob applies to find out what benefit he could claim to provide him with a replacement income. If Bob qualifies for Universal Credit, he would receive a single monthly payment which could cover a variety of the components mentioned above.
There are different types of Employment & Support Allowance. Income related Employment & Support Allowance (ESA) is part of Universal Credit and is claimable based on a means testing of household income and savings available. There is also a non means tested version of ESA which is related to National Insurance contributions called ‘New Style ESA’. This is not part of Universal Credit.
Let’s say that Bob is still off work sick after his Statutory Sick Pay ends (28 weeks).
Citizens Advice recommends that the application for ESA should be submitted around 3 months before the end of Statutory Sick Pay to help try and avoid any delays. The application to claim Employment & Support Allowance and Universal Credit can be completed online or downloaded, printed and completed on paper. The application to specifically claim for Employment & Support Allowance is lengthy. It is currently 64 pages in total with 56 pages dedicated to data capture to support the application.
Once Bob’s application has been received, he will enter the assessment phase in his application for Employment & Support Allowance. The assessment phase should be 13 weeks but can take longer. The assessment phase is the time in which he will be medically assessed to see whether he will qualifies for ESA. The assessment is called the ‘Work Capability Assessment’.
The Work Capability Assessment involves a face-to-face medical assessment and a questionnaire. For employed people, the assessment phase should take place between week 28 (when SSP ends) and week 41. During the assessment phase, Bob will receive a benefit of £73.10 per week. People under the age of 25 would receive a lower level of benefit.
There are effectively 3 outcomes for claimants of Employment and Support Allowance.
Let’s say the DWP has decided that Bob cannot work but could do ‘work-related activity’, they could put him in the work-related activity group (WRAG) of Employment and Support Allowance (ESA). Or, he could qualify for the ‘limited capability for work’ element of Universal Credit (UC).
Bob could receive a benefit of up to £73.10 per week in the ‘Work Related Activity Group’. This is called the ‘main phase basic allowance’ which is the same monetary amount of benefit he would have been receiving during the assessment phase (based on the tax year 2019/20). If Bob was put in the Support Group he could claim the ‘main phase basic allowance’ (£73.10) plus the ‘support component’ (£38.55). This could mean a weekly benefit payment of £111.65.
However, claimants who qualify for the support group are typically people who are so severely ill or disabled it is unreasonable to require them to engage in work-related activity as a condition for receiving ESA. The other outcome that Bob could receive following his Work Capability Assessment is that he is classed as ‘Fit for Work’ and will not receive any benefit for Employment and Support Allowance.
If Bob is unhappy with the outcome, he has the right to ask for a mandatory reconsideration in the first instance. Bob must apply for a mandatory reconsideration within one month of the date on his decision letter. The mandatory reconsideration is a process in which the DWP will review the application for ESA again.
Once the reconsideration outcome is received, Bob could still be unhappy. He could still be classed as ‘fit for work’ regardless of how long he has been off work so far and what his own GP might have told him. At this point he could lodge an appeal. The appeal would take place in front of an independent tribunal.
Data from the Department of work and pensions suggests that between October 2013 and March 2018; 63% of claimants who lodged an appeal had the decision overturned.
Another state benefit that Bob could potentially claim is SMI – support for mortgage interest. Support for Mortgage Interest is a loan which has the aim to help claimants pay the interest payments on their mortgage or other loans for home purchase, repairs and home improvements.
But this is a loan – not a gift. The loan will accrue interest at a rate set by the DWP and must be repaid when the claimant sells or transfers ownership of the property (provided there is enough equity in the property).
Homeowners (or people treated as liable for owner-occupier payments) who are entitled to one of the following benefits could qualify for Support for Mortgage Interest:
So let’s say Bob applies for SMI because he has been off work sick and needs help to meet his financial obligations as well as his mortgage payments. Bob has a mortgage of £150,000 with a term of 30 years. His mortgage is capital and interest (repayment). The interest rate is 4% fixed for 5 years and means his monthly mortgage payment is £716 per month.
If Bob is claiming one of the above benefits, he would have had to have served the relevant waiting period before he could receive the Support for Mortgage Interest Loan. The waiting period is normally 39 weeks. People who are in receipt of Pension Credit would not have a waiting period.
If Bob was successful in his application for SMI, he could expect to receive around £326 per month to help with mortgage interest costs. This is calculated based the current interest rate of 2.61% (which is subject to fluctuate from time to time and is set by the DWP). Daily interest would accrue on the amount of loan paid to Bob at a current rate of 1.5% (which is subject to fluctuate from time to time and is set by the DWP).
The DWP will not do a credit check on applicants for SMI.
Bob could potentially claim other state benefits depending upon his circumstances. However, it is very difficult to accurately portray what a claimant would actually and specifically qualify for without taking many other factors into consideration.
We’ve seen eligibility for various benefits change frequently and here is a list of just some of the factors which directly affect whether a claimant would qualify for any type of state benefit:
The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.
All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.