Are you protecting your income?

March 8th, 2013

A recent ICM survey commissioned by ‘the syndicate’ on behalf of insurers highlighted that a third of respondents were not aware of how long they could claim Employment and Support Allowance (ESA) for, with only 16% of those who replied giving the correct answer of between 9 and 12 months.

The encouraging part was that around a fifth of respondents believed that ESA would only be payable for between 4 and 6 months and, whilst the reality is that this not the case, it does indicate that very few individuals expect that they will receive any form of long term support from the state. So, exactly what support is available in the event of being unable to work due to long term incapacity?

Statutory Sick Pay (SSP)

SSP is payable by employers at a flat rate of £85.85 (2012/13) and it is payable for a maximum of 28 weeks, although of course employers may (and often do) choose to offer more generous sick pay arrangements.

This benefit is only available to employed individuals aged between 16 and 65 and who have earnings at least equivalent to the lower earnings limit (currently £107 per week for 2012/13).

Employment & Support Allowance (ESA)

ESA offers financial support if you are unable to work due to illness or disablement, replacing Incapacity Benefit for claims after 27 October 2008.

You can apply for ESA if you are employed, self-employed, or even unemployed. The table below shows broadly the rates at which ESA is payable as this is dependent on your circumstances. It is important to note that ESA will only be paid once any SSP entitlement has ceased.

After 13 weeks if you are still unable to return to work you will be placed into an ESA group: Either the work-related activity group (broadly those claimants who should be able to return to work at some point) or the Support group (those whose illness or disability severely restricts what they can do). The rate applicable after this point will also depend on which ESA group you are in.

Time Period Circumstance Weekly Amount
First 13 weeks Under 25 £56.25
First 13 weeks 25 or over £71.00
From 14 weeks Work Related Activity Group Up to £99.15
From 14 weeks Support Group Up to £105.05

Source: https://www.gov.uk/employment-support-allowance/what-youll-get

There are also different types of ESA: contributions based (for those with a sufficient NI contribution record) and income based (for those without a sufficient record). Importantly, contributions-based ESA only lasts for 1 year for those in the work-related activity group.

In addition your income and savings will also affect the amount of ESA you could receive. Your entitlement could be affected if you have savings in excess of £6,000 and those with savings over £16,000 would not qualify for income-based ESA.

Changes in 2013

From 6 April 2013 there may be an overall cap on the total benefits most people aged 16 – 64 can get. This benefit cap is being introduced to certain council areas from April but other areas will introduce the cap by the end of September 2013.

In addition the Universal Credit is also being rolled out in October 2013 for new claimants and this will replace income-related Jobseekers Allowance, income-related ESA, Income Support, Working Tax Credits, Child Tax Credits and Housing Benefit. It is proposed that existing claimants of the above benefits will gradually be migrated to the universal credit benefit.

Income Protection Policies

Clearly even the highest rate of ESA would be woefully insufficient for the majority of people to replace income lost through being unable to work long-term, although for many of us employer sick pay arrangements provide some reassurance for shorter-term illness.

It is possible, however, to effect a suitable income protection policy which would pay a percentage of your pre-illness / disability income (typically 50% – 70%) until you were able to return to work. These policies can be set up with different ‘deferred periods’ (that is the length of time that has to elapse before benefits start to be paid). Typical deferred periods are between 13 or 26 weeks although they can range up to 12 months. Generally speaking the longer the deferred period selected, the lower the premiums

Most of us take insurance to cover our homes, car, mobile phones and even our pets but it makes even more sense to protect our income. So if you want advice on finding suitable income protection cover please feel free to contact us for guidance.