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.
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.
He suggests: “Income protection is a vital area of protection planning, and it is very few clients that do not need at least some cover in this area. You can lose everything else in your life if you lose your income so the right amount of cover must be in place in addition to state benefits.”
A recent report from the Chartered Insurance Institute (CII) and SAMI Consulting outlines the scale of the issue.
Each year, one million people suffer a prolonged absence from work due to ill health but only one in 10 has income protection in place.
Statutory Sick Pay is £89.35 a week so for someone earning the UK average wage this will mean a drop in income of around £325 a week. Anyone off work for six months would be £9,000 out of pocket.
While some employees do currently benefit from a group income protection (IP) policy, this is still very low as a percentage of the workforce. According to figures from Swiss Re, only 2.1 million workers are covered by a group (IP) plan out of a total of 31.8 million people currently in the workforce.
As Keith Richards, managing director for Engagement at the CII, says: “Too many households have inadequate protection to cover long-term sickness absence. Yet a large proportion of the public are either discouraged or barred from filling this gap. 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.”
