STUDY WHEN CLOSE TO EXAMChapter 3 - (3 marks) Department For Work And Pension Benefits

Question 1

In relation to protection, why must an advisor be aware of state benefits?

Answer 1

An adviser must be aware of what benefits are available from the state, as this could reduce the protection shortfall calculated for the individual

Question 2

What is means-testing in relation to benefits?

Answer 2

Where the individual’s income and capital are taken into account when calculating benefit entitlement

Question 3

EXAMS TIPS

Answer 3

Question 4

QUESTION AND EXAM TIP

Answer 4

Question 5

Answer 5

Question 6

What benefits are available for the unemployed and those on low incomes?

There are 4 main ones:

Answer 6

Question 7

What benefits are available for those suffering from short and long-term sickness

Answer 7

Question 8

What benefits are available for those bringing up children?

Answer 8

Question 9

Benefits relating to mortgages or rental costs

Answer 9

NOTE: Support for mortgage interest (SMI) is the most common state benefit available to borrowers in financial difficulties. This should be the adviser’s main consideration when reviewing financial protection needs. It is also a favourite of the CII R05 examiner!

Question 10

Support for Mortgage Interest Loan is a benefit commonly tested in the RO5 exam

Tell me its key points

Answer 10

Only covers interest payments for mortgages up to £200,000.

No benefit is paid for the first 39 weeks.

If claiment receives Pension Credi, the loan is limited to £100,000 but has no waiting period.
It is available only on mortgages taken out for house purchase.
Bank of England interest rates are used in the benefit calculation.
The actual rate being paid by the borrower is irrelevant.
Payments are made direct to the lender, not the claimant.

Question 11

In relation to the ‘Support For Mortgage Interest’ (SMI) benefit what happens If the claimant receives Pension Credit?

Answer 11

Typically this benefit covers interest payments on mortgages up to £200,000 and there is a waiting period of 39weeks until benefits are received

However, If the claimant is in receipt of Pension Credit, the loan lowers to £100,000 with NO waiting period.

Question 12

Is SMI available for mortgages on commercial property?

Answer 12

No it is ONLY available only on mortgages taken out for house purchase.

Question 13

SMI’s covers interest payments on mortgages up to £200,000 (or 100k if the person receives pension credit)

The SMI does charge interest. What is the rate of the interest based on?

Answer 13

The interest rate of the loan is based off of the Bank of England rate. THE RATE IS VARIABLE so can change through the term

The loan plus interest is only repayable if the person dies/or sells the home that the SMI is secured against

Question 14

In relation to SMI are the payments made to lender or the claimant who then makes the payment to the lender?

Answer 14

Payments are made direct to the lender, not the claimant. (otherwise the claimant could spend the money elsewhere)

Question 15

Is SMI a benefit or a loan

How does it differ to a normal loan?

Answer 15

It is classed as a loan as it is repayable if the property is sold or the claimant dies

However, it is not like a typical loan because repayments are not mandatory; they are instead voluntary. This obvs helps the claimant

Question 16

SMI is means tested. Explain this in more detail.

Answer 16

If the individual has more than £16000 in savings they will not be eligible for the loan. (if the person receives pension credit this number is lowered to £10000)

If the individual has between £6000 and £16000 the loan that amount available will be reduced

Question 17

To set up the SMI which is a loan, is a credit search required?

Answer 17

No and there are also no fees to set up the loan. It is not like a typical loan.

Payments are also not mandatory; they are voluntary but the loan is repayable if the person dies or moves home (hence why it is classed as a ‘loan’ and not a ‘benefit’)

Question 18

QUESTION

Answer 18

Question 19

Tell me what benefits are availble to those suffering from disability

Answer 19

Question 20

Tell me what benefits are available to those in retirement

Answer 20

Question 21

What benefits are available to those who have suffered from the death of a spouse or civil partner

Answer 21

Question 22

QUESTION

Answer 22

Question 23

Question

Answer 23

Question 24

Question

Answer 24

Question 25

Question

Answer 25

Question 26

What benefits were moved under universal credit?

Answer 26

Jobseekers Allowance
Employment Support Allowance
Income Support
Child Tax Credit
Working Tax Credit
Housing Benefit

Question 27

What is the purpose of the benefit cap?

Answer 27

Introduced to limit the total amount of benefit that working-age people can receive.

Its aim is to prevent families that do not work getting more than those that do. It is currently being administered by DWP and local councils by deduction through housing benefit payments.

Question 28

QUESTION

Question 29

QUESTION
Xander has an interest only mortgage of £150,000. Five years ago, he borrowed another £50,000 to build a conservatory. He is now ill and looking for a support for mortgage interest (SMI) loan. What would be the maximum amount of borrowing

Xander could claim for under an SMI loan?
a) £50,000
b) £100,000
c)£150,000
d) £200,000.

Answer 29

Smi covers mortgages up to 200k and
Additional borrowing that are for improvements are not covered under an SMI loan. Therefore, Xander could only receive cover for interest on his original £150,000 mortgage.

Question 30

Benefits and drawbacks of state benefits in relation to financial protection planning

Answer 30

Benefits:
• Reduces the amount of any financial protection shortfall that requires personal provision.
• Will therefore reduce personal costs in terms of premium payments.
• Leaving more monies available for other financial needs.
•Provides a safety net in extreme circumstances.

Negatives:
• The individual may be ineligible for state benefits when assessed.
• State benefits will not replace the standard of living that some individuals are used to.
• Future legislation may affect eligibility criteria, making the individual potentially ineligible in the future.

Question 31

Exam tip:

Answer 31

A last state benefits top tip!
Don’t try to learn them until the day before your exam sitting.
You will absolutely get some questions on DWP benefits, so you must know them, but trying to learn and retain them a while before you exam will probably prove a challenge.
The CIl love asking about the rules rather than the actual amounts paid (generally!) Your exam tax tables have some of the amounts on the back page…

Question 32

John, a self-employed plumber, is about to start claiming Employment and Support Allowance. How long will it be before his assessment period begins?

3 days.

5 days.

4 weeks.

13 weeks.

Answer 32

3 days.

It is at-least 13 weeks for employed persons

Question 33

Wendy is entitled to a loan to help with her mortgage interest payments. The maximum mortgage covered would be…

£100,000 and paid to Wendy.

£150,000 and paid to Wendy.

£200,000 and paid to Wendy’s lender.

£250,000 and paid to Wendy’s lender.

Answer 33

£200,000 and paid to Wendy’s lender.

The maximum interest payments covered by a SMI loan is for a mortgage of up to £200,000. Payments are made to the lender, not the claimant. (if the individual receives pension credits it is reduced to 100k)

Question 34

Alan has been self-employed all his working life, paying both Class 2 and 4 NICs. Which of the following state pension benefits would he be entitled to, as a result?

Single Tier.

SERPS.

State Second Pension.

Guaranteed Pension Credit.

Answer 34

Alan would not have historically been entitled to earnings related state pensions, as he is self-employed.

Also Guaranteed Pension Credit is not dependent on NICs contributions.

so the answer is Single Tier.

Question 35

Carol has qualified for Attendance Allowance (AA). This DWP benefit is paid to claimants….

suffering from a severe disability for at least three months, and is taxable.

suffering from a severe disability for at least six months, and is tax-free

suffering from a severe disability for at least three months, and is tax-free.

suffering from a severe disability for at least six months, and is taxable.

Answer 35

suffering from a severe disability for at least six months, and is tax-free

AA is paid to claimants that are suffering from a severe disability for at least six months, and is paid tax-free.

Question 36

Jack and Jane are looking at their financial protection needs. If they include DWP benefits, this could…

increase any cover shortfalls.

decrease any cover shortfalls.

have no effect on cover shortfalls.

mean that the product provider insists on additional affordability checks.

Answer 36

decrease any cover shortfalls.

Including DWP benefits in financial protection planning is likely to decrease the shortfall in cover needed. (ie less cover is needed)

Question 37

Paul is applying for Jobseeker’s Allowance (JSA). After what period of time will this be means tested?

None – it is not a means tested DWP benefits.

It will be mean tested from the start of Paul’s application.

After three months when it changes to contribution based JSA.

After six months when it changes to income based JSA.

Answer 37

Contribution based JSA is payable for an initial six months, it’s based on a claimant’s NICs history but is not means tested.

If Paul is still unemployed after six months, he may be entitled to income based JSA. This is dependent on income and savings.

Question 38

Mike is continuing to claim Disability Living Allowance (DLA). This DWP benefit is made up of which of the following two components?

Care and mobility.

Daily living and mobility.

Care and daily living.

Daily living and nigh time care.

Answer 38

Care and mobility.

DLA may still be being claimed despite having been replaced by Personal Independence Payment (PIP).

There are two components to DLA – a care and mobility component.

Question 39

Terry purchased a property for £150,000 five years ago. He increased his mortgage by £50,000 two years ago to add a garage. He is now off long-term sick and is looking to benefit from a Support for Mortgage Interest loan. How much of his mortgage will be covered?

All of it as it is within the £200,000 threshold.

£150,000 as loans for home improvements do not qualify.

£50,000 as loans for home improvements do qualify.

None of it as loans for home improvements do not qualify.

Answer 39

The maximum interest payments covered by an SMI loan is for a mortgage of up to £200,000. This mortgage must be for home purchase and not improvements.

The fact that Terry’s loan in total is within the £200,000 SMI loan limit is irrelevant. It does not cover loans taken out for home improvements.

Therefore, ONLY his initial £150,000 mortgage will qualify.

Question 40

Joe has an employer-sponsored policy with a continuation option. He is leaving his employer to become self-employed. If he utilises this continuation option, it means that…

a) his policy premiums will decrease.
b) his policy premiums will increase.
c) his policy will continue as an employer sponsored one.
d) his policy will continue as a private one.

Answer 40

If a continuation option is used on an employer sponsored policy, this means that the policy will continue as a private policy. d) is the correct answer.