Protecting income & protecting lifestyle – the backup plan

1. Realistically, when should someone who is receiving statutory sick pay, complete and submit their application for Employment and Support Allowance?

Citizens Advice say that if you’re getting Statutory Sick Pay, you can fill in the ESA claim form up to 3 months before it's due to finish. This will potentially help you get your ESA money quicker.

2. Is Employment and Support Allowance (ESA) means tested?

It depends upon which type of ESA you qualify for.  There are different types of ESA:

• Income Related ESA
• Contribution related ESA
• New style ESA

Income related ESA IS means tested.  The Department for Work and Pensions will look at your income, your partner’s income and your savings and some other factors to see whether you qualify or not.

The other types of ESA (contribution related or new style) are not means tested.  Claimants might be able to claim this version if they’ve paid enough National Insurance contributions over the last 2 to 3 years.  However, contribution related ESA is only paid for 12 months as a maximum if you’re put in the Work Related Activity Group.

3. Would you recommend any calculators that I can use to calculate what state benefits my clients could potentially qualify for?

Yes there are lots of good calculators you can use, but just be aware that you do have to input quite a lot of data before you see the decision.

I’d take a look at the following:

• turn2us.org.uk
• entitledto.co.uk

These are both approved by the GOV.UK website.

4. I’ve heard that claiming means tested state benefits would be affected by actually having a protection plan in place.  Can you explain what would happen?

The Department for Work and Pensions have now made it clear that any income that people receive from insurance (such as Income Protection) which is specifically intended to cover their mortgage payments; this would be disregarded when their means tested benefits are assessed.

5. Can an employer claim the Statutory Sick Pay they have paid to an employee back from the Department for Work and Pensions?

No.  An employer cannot claim any sick pay benefits back from the Department for Work and Pensions.  They used to be able to but this changed back in 2014.

Take a look at our calculator which allows you to instantly calculate the difference in National Insurance contributions between employed and self-employed people.

6. When a claimant qualifies for Employment & Support Allowance (ESA) and is placed in the ‘Work Related Activity Group’; don’t they get a higher amount of benefit to the benefit they initially receive whilst being assessed?

For the 2019/2020 tax year; if a claimant for ESA is in the assessment phase, they could claim up to £73.10 per week.

However, once their assessment reaches an outcome, they could be placed in the Work Related Activity Group.  The Department for Work and Pensions give a definition for those in this group which is that they have decided that your disability or health condition does limit your ability to work right now, but there are things you can do to improve this.

New claimants of ESA benefit who are in the Work Related Activity Group would receive a benefit of £73.10 per week – which is the same amount of benefit they would have received whilst being assessed.  There is no additional component benefit available for new claimants.

Prior to April 2017, an additional component would be paid to those in the Work Related Activity Group.  The Work Related Activity Group Component is £29.05 per week (based on the 2019/2020 tax year) – but this is only available for claimants who were assessed prior to April 2017.

7. If a claimant for Employment & Support Allowance receives the ‘Fit for Work’ assessment outcome, what can the claimant do?  Can they appeal the decision?

Claimants who receive the ‘Fit for Work’ outcome have a couple of options available to them.

In the first instance, claimants can ask for a mandatory reconsideration.  This is where the Department for Work and Pensions (DWP) will take another look at the claim and the decision could be overturned. 

Data from the DWP suggest that many claimants do exercise their right for a mandatory reconsideration each year.

If the claimant is still unhappy with the decision of the mandatory reconsideration, they can lodge an appeal.  The appeal will be handled by an independent tribunal. 

Data published by the DWP which looks at ESA claimants between October 2013 and March 2018 shows that a significant portion of those who appeal their Work Capability decision actually have the ‘fit for work’ outcome overturned (63%).

8. If a claimant for Support for Mortgage Interest (SMI) has a higher interest rate on their mortgage, to the interest rate used on this state benefit, what would happen?

In simple terms, there would be a shortfall and the claimant would have to make up the difference to satisfy the mortgage lender.

The rate of interest currently used to calculate Support for Mortgage Interest benefit is 2.61% at the time of writing in May 2019. 

This is interest rate is used to calculate payments for interest only (not capital). This rate will fluctuate from time to time and is administered by the Department for Work and Pensions.

9. If a claimant receives Support for Mortgage Interest (SMI) for a period of time; would anything need to be paid back?

Yes.  All of the benefit, plus interest would need to be paid back because since April 2018, SMI is now a loan which is secured against the claimants property.

Repayment of the SMI Loan can be made at any time or when the claimant sells or transfers ownership of the property (provided there is enough equity in the property).

The rate of interest used on the ‘loan’ you have taken is currently 1.5% at the time of writing, but is subject to change from time to time.

Note

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.