Understanding state benefits and protection - part one

If the net household income is more than £520 a month the cap does not apply. This brings it in line with the Working Tax Credit exclusion so that those working ‘full-time’ are not hit.

The cap does not apply if anyone in the benefits household qualifies for:

• Carer’s Allowance.
• Working Tax Credit.
• Guardian's Allowance.
• Attendance Allowance.
• Disability Living Allowance.
• Personal Independence Payment.
• Universal Credit payments towards carer’s costs or for ‘limited capability for work and work-related activity’.
• War Widow’s or War Widower’s Pension.
• Employment and Support Allowance, if you get the support component.
• Industrial Injuries Benefits (and equivalent payments as part of a war disablement pension or the Armed Forces Compensation Scheme).

Until 6 November 2016, the total that could be paid in working age benefits for those living outside London was capped at £350 a week for a single person with no dependants, or £500 a week for a couple with dependant children or single parent.

Since then, this has been reduced to £257.69 a week for a single person or £384.62 a week for a couple or single parent. People living in London have a higher weekly cap of £296.35 for a single person, or £442.31 for a couple or single parent.

The 2015 Budget saw many elements of working age benefits frozen until 2020. The freeze broadly applies to most parts of benefits except those related to disability.

More recent changes include a limit on benefit support to two children per family born after April 2017 - with some exceptions - and the lowering of payments to those with a limited capability for work and work related expenses.

It’s worth noting here that the cap has been called into question by the High Court who have found against the Department for Work & Pensions (DWP) in relation to the two children limit. DWP, in turn, have confirmed that they are appealing the High Court judgement.

There’s a clear need for a more joined up and effective social welfare system bringing together the government and the income protection insurance profession.Keith Richards

To ensure clients get the best coverage from protection products it is essential to understand the benefits system and the changes that are coming through.

The case for protection

Despite the state benefits available when someone is unable to work through accident, ill health or disability, the case for protection remains a strong one. 

Mark Dennison of LightBlue UK makes the point this is particularly important where the level of state benefits available is considerably lower than the client’s current earnings.