In Sickness And In Health

November 20th, 2008

Being unable to work due to illness or disability could happen to anyone and it is therefore important to understand how your income will be affected should this happen to you.  The State would provide some income albeit at a basic level, through a combination of Incapacity Benefit, Income Support, Disability Living Allowance, Housing Benefit or Council Tax Benefit, depending on circumstances.

New claimants from 27th October 2008 will now receive Employment and Support Allowance (ESA) which replaces Incapacity Benefit and Income Support paid on incapacity grounds.  Current recipients of Incapacity Benefit will continue to receive this if they remain eligible, however it is intended to move them on to the new benefit between 2010 and 2013.  The introduction of ESA forms part of the Government’s Welfare Reform programme which aims to take one million people off incapacity benefits by 2015.

On applying for ESA you are placed in an initial assessment period lasting up to 13 weeks.  After this time, if you remain eligible for the benefit you will be placed in either the Work-Related Activity Group if it is felt you can undertake some form of work-related activity, or the Support Group if you are unable to undertake any form of work-related activity, for example, if you are terminally ill.

Eligibility for ESA is based on a number of factors such as age, entitlement to other benefits and your National Insurance contribution record.  If you meet all the requirements and your National Insurance contribution record is sufficient you will receive a contribution-based benefit. If you do not meet all these requirements and you have capital below a certain level you may receive income-related benefits.

ESA differs to Incapacity Benefit in a number of ways:

  • The timing of an assessment

With Incapacity Benefit a personal capability assessment occurs after the 29th week of incapacity (unless you have not worked for at least 8 of the previous 21 weeks, in which case it is as soon as you claim).

With ESA a work capability assessment will occur within the initial 13 week period.  If you are capable of some form of work-related activity you will also take part in a ‘work focused health-related assessment’ exploring your views about moving into work and identifying any health related support that may help with this transition.  The results of the Work Capability Assessment will determine if you are entitled to continue to receive ESA.

  • The amount of benefit received

With Incapacity Benefit there are three tiers of payment:

  • a short term (lower rate) of £63.75pw paid for the first 28 weeks;
  • a short term (higher rate) of £75.40pw paid from weeks 29 to 52; and
  • a long term rate of £84.50pw paid after 52 weeks (these rates assume you are under State Pension age).

For ESA during the initial 13 week assessment period:

  • a single person aged over 25 will receive £60.50pw; and
  • a single person aged below 25 will receive £47.95pw.

From week 14 claimants are placed into one of two groups. If placed in the Work Related Group the benefit increases to up to £84.50pw and if placed in the Support Group the benefit increases to up to £89.50pw (benefits may be higher depending on circumstances).

With the introduction of ESA the amount of benefit potentially increases after a shorter period reflecting that the assessment to determine eligibility for the benefit takes place earlier.

The Government’s attitude towards the benefit

With ESA the emphasis is on trying to ensure that where people are capable of work they find employment and are removed from benefits.  This is reflected in the change of name to move away from inferring that someone is incapable of work by using the term Incapacity Benefit, to one that indicates people are supported to enter employment.

As the assessment occurs at an earlier stage and is structured to consider if you are capable of undertaking any work, it is likely to be more difficult to carry on receiving this benefit after assessment.  This could make a big difference in the level of support you receive from the State and how long you could maintain a reasonable standard of living.

So if you do not want to rely on State assistance what can you do?  It may be worth considering an income protection policy, which is designed to provide a proportion of your pre-disability income should you be unable to work due to sickness/disability and can provide benefits in the region of 50-55% of pre-disability income.  Providers can take into account other income, insurances and State benefits you are receiving in deciding the amount available under the plan.

Following a valid claim, the plan will begin to make payments after a pre-determined period (usually linked to how long your income will continue if you are unable to carry on working) and will continue to pay the income until the earlier of your return to work, or the end of the term of the contract, usually a specified age up to State pension age.

Some key benefits of having an income protection plan rather than relying solely on the State are:

  • The new ESA benefit includes an assessment to decide if you are capable of any work whereas an income protection plan can be established so that benefits are paid if you are unable to perform your own occupation, or any suited occupation based on your experience and training.
  • The level of benefit received under an income protection plan should be higher than that received under ESA.
  • Benefits under a personal income protection plan are paid without deduction of Income Tax and National Insurance and you have a choice as to how soon you wish benefits to start after incapacity. With ESA, Income Tax will not be deducted from income-related benefit, but could be deducted from contribution-based ESA if you are receiving benefits in either group from week 14 onwards.

It is important to understand that insurance is based on an assessment of your health and is unlikely to cover you for previous or existing medical conditions.  You should refer to the policy documentation and seek advice in order to understand what the policy does and does not cover before making an application.

In summary, whilst no-one likes to think that they will suffer an illness or disability that prevents them from continuing in their job there is a possibility that this could happen. There were 2.6 million people claiming Incapacity Benefit in 2008 (Source: DWP), although (or especially as) the cost of living has risen it may be worth considering planning for this eventuality as the bills will remain even if your income does not.

With Incapacity Benefit a personal capability assessment occurs after the 29th week of incapacity (unless you have not worked for at least 8 of the previous 21 weeks, in which case it is as soon as you claim).

With ESA a work capability assessment will occur within the initial 13 week period. If you are capable of some form of work-related activity you will also take part in a ‘work focused health-related assessment’ exploring your views about moving into work and identifying any health related support that may help with this transition. The results of the Work Capability Assessment will determine if you are entitled to continue to receive ESA.