Transcript Document

For advisers only. Not for use with customers.
FRIENDS® Protection
Income Protection vs. State benefits in 2009
State benefits & Welfare Reform
•FRIENDS
Changes
to the State benefits system took effect on 27th October
Protection
2008.
®
• The old system assessed incapacity based on what a claimant
could not do rather than what they could do.
• The new focus is to identify what work claimants are capable of
doing, and will test how severe their condition is.
• The amount of State benefit people receive depends on the
outcome of their assessment.
Source: Department of Work & Pensions (2009)
State Benefits in 2009
FRIENDS® Protection
• Statutory Sick Pay (SSP) of £79.15 a week is payable for
the first 28 weeks if the claimant is employed
• Employment and Support Allowance (ESA) of £64.30 a
week is payable after 28 weeks. ESA replaced State
Incapacity Benefit for new claimants after 26/10/2008
• The self-employed and those who do not qualify for SSP,
can claim ESA at the start of their incapacity.
28 weeks
Statutory Sick Pay
Source: Department of Work & Pensions (April 2009 rates)
Employment & Support Allowance (ESA)
State Benefits in 2009 - Work Capability Assessment
FRIENDS® Protection
• The Work Capability Assessment takes place during the
first 13 weeks on ESA
• The Work Capability Assessment is a medical test
designed to look at what the claimant ‘can do’ rather than
what they ‘cannot do’.
28 weeks
Statutory Sick Pay
Source: Department of Work & Pensions (April 2009 rates)
41 weeks
Employment & Support Allowance (ESA)
State Benefits in 2009 - Outcomes of the
Work Capability Assessment…
FRIENDS® Protection
The ‘Support Group’
• Claimants who are incapable of taking part in any workrelated activity will receive between £95.15 to £108.55 a
week.
Source: Department of Work & Pensions (April 2009 rates)
State Benefits - Outcomes of the Work
Capability Assessment…
FRIENDS® Protection
The ‘Work-Related Activity Group’
• Claimants considered capable of any work-related activity will receive a
benefit of £89.80 a week
• But they must attend 6 work focused interviews in an effort to obtain
alternative employment.
• Failure to comply would result in a reduction to the level of benefit being
received.
Source: Department of Work & Pensions (April 2009 rates)
State Benefits - Outcomes of the Work
Capability Assessment…
FRIENDS® Protection
• Therefore, people applying for ESA will fall into one of
three categories:
Qualify for ‘Support Group’
( £95.15 to £108.55 a week)
Qualify for ‘Work-Related Activity Group’
Fail Capability Assessment
Source: Department of Work & Pensions (April 2009 rates)
(£89.80 a week)
(end of benefits)
State Benefits
FRIENDS® Protection
• As not everyone will qualify for long-term ESA, applicants
need to decide whether or not to cover an amount for
ESA, when calculating the level of Income Protection
benefit they require.
Income Protection
FRIENDS® Protection
• Income Protection is designed to replace the Income of
a policyholder in the event of suffering an accident or
illness preventing them from being able to work
• The amount of any Income Protection benefit payable
will always be less than the policyholder’s preincapacity income, but it will be a great deal more than
any State benefits!
FRIENDS® Protection
Income Protection vs. State Benefits Case Study
Case Study
FRIENDS® Protection
• Andy is single, aged 35 and works as a Sales Consultant
for an IT company in Newcastle upon Tyne.
• He earns £40,000 a year and has taken out an Income
Protection policy with Friends Provident.
• He also has sick pay arrangements with his employer
which will pay out for 1 month.
Case Study
FRIENDS® Protection
• After tax and National Insurance, Andy’s take home pay
is £2,460.33 a month, or £567.77 a week.
• The following will illustrate the effect of how having an
Income Protection policy compares to having to rely on
State benefits.
Take home pay based on 2009/2010 Tax & National Insurance rates - No other deductions assumed
Case Study
FRIENDS® Protection
£600.00
In the event of Andy suffering
an accident or sickness
preventing him from working,
for the first month he will be
paid his full salary of £567.77
a week by his employer.
£567.77
£500.00
£400.00
£300.00
£200.00
£100.00
£0.00
Weeks 1 to 4
Employer Benefits
Take home pay based on 2009/2010 Tax & National Insurance rates - No other deductions assumed
SSP
Income Protection
Case Study
FRIENDS® Protection
In the event of Andy suffering
an accident or sickness
preventing him from working,
for the first month he will be
paid his full salary of £567.77
a week by his employer.
After 1 month, his income
would stop. Andy would be
able to apply for Statutory Sick
Pay (SSP) at a rate of £79.15 a
week.
£600.00
£567.77
£500.00
£400.00
£300.00
£200.00
£100.00
£79.15
£0.00
Weeks 4 to 28
Employer Benefits
Take home pay based on 2009/2010 Tax & National Insurance rates - No other deductions assumed
Statutory Sick Pay – Source Department of Work & Pensions (Rates from April 2009)
SSP
Income Protection
Case Study
FRIENDS® Protection
£600.00
Without Income Protection,
Andy would have to rely on
SSP at a rate of £79.15 a
week until his 28th week of
sickness.
£567.77
£500.00
£400.00
£300.00
£200.00
£100.00
£79.15
£0.00
Weeks 4 to 28
Employer Benefits
Take home pay based on 2009/2010 Tax & National Insurance rates - No other deductions assumed
Statutory Sick Pay – Source Department of Work & Pensions (Rates from April 2009)
SSP
Income Protection
Case Study
FRIENDS® Protection
£600.00
Without Income Protection,
Andy would have to rely on
SSP at a rate of £79.15 per
week until his 28th week of
sickness.
To Andy, this is an income
drop of £488.62 per week - a
massive 86% drop in NET
income!
£567.77
£500.00
£400.00
£300.00
£200.00
£100.00
£79.15
£0.00
Weeks 4 to 28
Employer Benefits
Take home pay based on 2009/2010 Tax & National Insurance rates - No other deductions assumed
Statutory Sick Pay – Source Department of Work & Pensions (Rates from April 2009)
SSP
Income Protection
Case Study
FRIENDS® Protection
£600.00
At 28 weeks, Statutory Sick
Pay ceases and is replaced by
‘Employment & Support
Allowance’ with a reduced
benefit of £64.30 a week
During the next 13 weeks, Andy
would have to undergo a ‘Work
Capability Assessment’ which is
a medical examination carried
out by a doctor.
£567.77
£500.00
£400.00
£300.00
£200.00
£100.00
£64.30
£0.00
Week 29 to 41
Employer Benefits
Take home pay based on 2009/2010 Tax & National Insurance rates - No other deductions assumed
Employment & Support Allowance – Source Department of Work & Pensions (Rates from April 2009)
ESA
Income Protection
Case Study
FRIENDS® Protection
£600.00
The assessment is to
determine the severity of
Andy’s incapacity and whether
he is capable of ANY form of
work.
The results of the Work
Capability Assessment will
determine what State benefit
he can claim next – if any!
£567.77
£500.00
£400.00
£300.00
£200.00
£100.00
£64.30
£0.00
Week 29 to 41
Employer Benefits
Take home pay based on 2009/2010 Tax & National Insurance rates - No other deductions assumed
Employment & Support Allowance – Source Department of Work & Pensions (Rates from April 2009)
ESA
Income Protection
Case Study
FRIENDS® Protection
£600.00
Assessment Outcomes:
If Andy is assessed as being
incapable of ANY work-related
activity, he could receive a
benefit of from £95.15 to
£108.55 a week depending on
the severity of his condition.
£567.77
£500.00
£400.00
£300.00
£200.00
£100.00
£95.15
£0.00
From Week 42
Employer Benefits
Take home pay based on 2009/2010 Tax & National Insurance rates - No other deductions assumed
Employment & Support Allowance – Source Department of Work & Pensions (Rates from April 2009)
ESA
Income Protection
Case Study
FRIENDS® Protection
£600.00
£567.77
Assessment Outcomes:
£500.00
If Andy is assessed as being
capable of work-related activity,
he could join the ‘Work-Related
Activity Group’ and receive a
benefit of £89.80 a week
But there are conditions – Andy
would have to attend 6 work
focused interviews in an effort to
obtain alternative employment –
or risk losing his benefit
£400.00
£300.00
£200.00
£100.00
£89.80
£0.00
From Week 42
Employer Benefits
Take home pay based on 2009/2010 Tax & National Insurance rates - No other deductions assumed
Employment & Support Allowance – Source Department of Work & Pensions (Rates from April 2009)
ESA
Income Protection
Case Study
FRIENDS® Protection
£600.00
Assessment Outcomes:
£500.00
Andy could also fail the Work
Capability Assessment and at
this point his benefit could cease
completely.
£400.00
£567.77
£300.00
£200.00
£100.00
£0.00
£0.00
From Week 42
Employer Benefits
Take home pay based on 2009/2010 Tax & National Insurance rates - No other deductions assumed
Employment & Support Allowance – Source Department of Work & Pensions (Rates from April 2009)
ESA
Income Protection
Case Study
FRIENDS® Protection
£600.00
With an Income Protection
policy, Andy can choose to
take out the maximum cover
available to him.
With Friends Provident he can
cover £24,000 of his income,
equivalent to £462 a week, tax
free.
He could have had this paid
from week 5.
£567.77
£500.00
£400.00
£300.00
£200.00
£100.00
£0.00
£0.00
Week 5
Employer Benefits
Take home pay based on 2009/2010 Tax & National Insurance rates - No other deductions assumed
Income Protection Benefit maximum benefit – Source: Friends Provident 2009
£462
ESA
Income Protection
Case Study Conclusion
FRIENDS® Protection
• In this example you have seen, if Andy was unable to work for 2
years and joined the ‘Work Capability Group’ the total income he
would have received would be:
Relying on State benefits
£567.77
for 4 weeks
£79.15
until week 28
£64.30
for the next 13 weeks
£89.80
until 2 years
= £10,663.98
Case Study Conclusion
FRIENDS® Protection
• But, with an Income Protection policy, he would have received:
Relying on State Benefits
£567.77
for 4 weeks
With Friends Provident
Income Protection
£79.15
until week 28
£567.77
for 4 weeks
£64.30
for the next 13 weeks
£462
for 100 weeks
£89.80
until 2 years
= £10,663.98
= £48,471.08
Issues with State Benefits
FRIENDS® Protection
• If claimants have not made sufficient National Insurance
contributions, benefits applied for become means tested which
means:
– Any other income being received either by the claimant or a spouse will
affect the amount of benefit they can receive.
– Those with savings of between £6,000 and £16,000 will receive a
reduced amount of payment
– People with savings over £16,000 will not receive any benefit.
Issues with State Benefits
FRIENDS® Protection
• For couples, rates will differ depending on circumstances
• For single people aged under 25, rates paid are lower during the
assessment phase (week 29 to 41).
Friends Provident Income Protection vs
State Benefits - Key Messages
The State Benefits system is not designed to give people a comfortable
standard of living – benefit rates reflect this.
FRIENDS® Protection
It is getting more difficult for people to qualify for long term state benefits.
The Department of Work and Pensions (DWP) do not use ‘Own’
Occupation – they use ‘Any’ Occupation when determining a claimant’s
capacity to work.
If applicants applying for Income Protection believe that they might be
eligible for State Benefits, these can be deducted from the Income
Protection benefit being applied for.
Rehabilitation & Proportionate Benefit also allow people who are taking
steps back into the workplace to maintain a good standard of living.
For more information, call your usual FRIENDS® contact.
FRIENDS® Protection
Friends Provident Life Assurance Limited
Registered and Head Office: Pixham End, Dorking, Surrey RH4 1QA
Incorporated company limited by shares and registered in England number 782698
www.friendsprovident.com Telephone 0845 602 9189