Topic 5 Flashcards
Benefits cap
A cap on the amount of certain state benefits that an individual or family can receive each week. Broadly equivalent to the average UK wage.
Means tested
State benefits where eligibility is limited to those with income below a specified amount and/or savings/capital below a specified amount.
Basic state pension
The basic element of the state pension payable to those who reached state pension age before 6 April 2016. Those who were employed may also have earned additional state pensions through a graduated pension, SERPS or S2P.
New state pension
A flat rate, higher state pension, payable to those who reach state pension age on or after 6 April 2016, with no additional pensions payable. Those who reach state pension age on or after 6 April 2016 receive the higher of the flat rate pension or the basic state pension plus additional pensions earned before 6 April 2016.
How do state benefits affect financial planning?
1) State benefits can affect the need for financial protection. The amount of
additional cover needed by a client can be quantified as the difference
between the level of income or capital required and the level of cover
already existing. Existing provision includes not only any private insurance
that the client already has, but also any state benefits to which they or their
dependants would be entitled.
How do state benefits affect financial planning?
2) Financial circumstances can affect entitlement to benefits. Certain benefits
are means‑tested – in other words, the amount of benefit is reduced if
the individual’s (or sometimes the household’s) income or savings exceed
specified levels. This might mean, for example, that a financial plan that
increased a person’s income or the value of their assets might be less
attractive than it seemed at first sight, if it also had the effect of reducing
entitlement to, for instance, Income Support.
Universal Credit
Universal Credit is a means‑tested benefit for people of working age. The
upper age limit is at the point where people qualify for Pension Credit.
From April 2013, Universal Credit began to replace the following benefits:
Income Support;
Income‑based Jobseeker’s Allowance;
Income‑related Employment and Support Allowance;
Working Tax Credit and Child Tax Credit;
Housing Benefit
The benefits that will remain outside of Universal Credit include:
Carer’s Allowance;
Contribution‑based Jobseeker’s Allowance and Contribution‑based
Employment and Support Allowance;
Disability Living Allowance/Personal Independence Payment;
Child Benefit;
Statutory Sick Pay;
Statutory Maternity Pay;
Maternity Allowance;
Attendance Allowance (as this is for claimants over 65 anyway).
Working Tax Credit
Working Tax Credit is designed to top up the earnings of employed or
self‑employed people who are on low incomes; this includes those who do not
have children. There are extra amounts for:
working households in which someone has a disability; and
the costs of qualifying childcare.
Working Tax Credit has now been replaced by Universal Credit and new claims
can only be made for those already receiving Child Tax Credit
Income Support
Income Support is a tax‑free benefit designed to help people aged between
16 and the qualifying age for state Pension Credit whose income is below a
certain level and who are working less than 16 hours per week (if they have a
partner, their partner must work less than 24 hours per week). It was available
to people with no income at all or it could be used to top up other benefits or
part‑time earnings.
Existing claims continue to apply to those who already receive the benefit and
continue to meet the eligibility requirements. New claims for Income Support
can no longer be made, but those on low incomes can apply for Universal
Credit.
Jobseeker’s Allowance
Jobseeker’s Allowance (JSA) is a benefit for people who are unemployed or
working less than 16 hours and actively seeking work. There are two forms of
JSA: contribution‑based and income‑based. Income‑based JSA is being replaced
by Universal Credit.
People are eligible for contribution‑based JSA only if they have paid sufficient
Class 1 National Insurance contributions. It is paid at a fixed rate, irrespective
of savings or partner’s earnings, for a maximum of six months. Payments
are made gross but are taxable. Claimants are usually credited with National
Insurance contributions (NICs) for every week that they receive JSA
Support for Mortgage Interest loan
Those in receipt of Income Support, Jobseeker’s Allowance, Universal Credit or
Pension Credit can apply for assistance to pay the interest on their mortgage.
Support for Mortgage Interest (SMI) was a pure state benefit until April 2018
but now takes the form of a loan that must be repaid.
Second charge
The SMI loan is secured on the property by way of a second charge and is
subject to interest. The loan is repaid when the property is sold or ownership
of the property is transferred.
The following benefits are subject to the cap.
Employment and
Support Allowance
Income Support
Jobseeker’s
Allowance
Housing Benefit
Maternity
Allowance
Child Benefit
Child Tax Credit
Guardian’s
Allowance
Bereavement
Allowance
Incapacity Benefit
Severe
Disablement
Allowance
Universal Credit
(unless deemed
unfit for work)
Widowed Parent’s
Allowance
Statutory Maternity Pay
Women who become pregnant while employed may be able to receive Statutory
Maternity Pay (SMP) from their employer, providing that:
their average weekly earnings are above a certain threshold;
they have been working for their employer continuously for 26 weeks prior
to their ‘qualifying week’, which is the 15th week before the week in which
their baby is due.
Statutory Maternity Pay
SMP is payable for a maximum of 39 weeks. The earliest it can begin is 11
weeks before the baby is due and the latest is when the baby is born.
There are two rates of SMP: for an initial period, the amount paid is equal
to a percentage of the employee’s average weekly earnings; after that, the
remaining payments are at a standard flat rate or set percentage of the
employee’s average weekly earnings, whichever is the lower.
SMP is taxable and NICs are due on the amount paid
Maternity Allowance
Some women who become pregnant are not able to claim SMP, including those
who are self‑employed or have recently changed jobs or stopped working. They
might be able to claim an alternative benefit called Maternity Allowance. This
is paid by the Department for Work and Pensions (DWP) and not by employers.
Maternity Allowance
Maternity Allowance is paid at a lower rate than SMP but it is not subject to
tax or NICs on the amount paid. Like SMP, it is payable for a maximum of 39
weeks. The earliest it can begin is 11 weeks before the baby is due and the
latest is when the baby is born.
Child Benefit
Child Benefit is a tax‑free benefit available to parents and others who are
responsible for bringing up a child. It does not depend on having paid NICs. It
is not affected by receipt of any other benefits.
Child Benefit is available for each child under age 16. It can continue up to
and including age 19 if the child is in full‑time education or on an approved
training programme. A higher rate is paid in respect of the eldest child and a
lower rate in respect of every other child
CB threshold
Child Benefit is means‑tested in the form of an income tax charge if either of a
couple has individual adjusted net annual income over the threshold. If both
have adjusted net income above the threshold, it is assessed on the higher
of the two incomes. The tax charge is collected through self‑assessment and
is applied at a rate such that, where adjusted net income reaches a specified
level above the threshold, the tax charge equals the Child Benefit paid
Child Tax Credit
Child Tax Credit is designed to provide financial assistance to people who are
responsible for bringing up children and are on low incomes. A claim may be
made by an individual who is responsible for:
a child aged under 16;
a child under 20 in eligible education or training
ane and John have two young daughters and claim Child Benefit.
John earns £48,000 per year and Jane earns £57,000 per year. If
the threshold is £50,000 they will be entitled to:
a) no Child Benefit as one of their incomes is over the threshold.
b) 100 per cent of Child Benefit as one of their incomes is under
the threshold.
c) a reduced amount of Child Benefit as one of their incomes is
over the threshold.
d) an increased amount of Child Benefit as one of their incomes is
under the threshold
The correct answer is c). Tax is charged through self‑assessment for
any income above the threshold, reducing the amount of Child Benefit
received
Statutory Sick Pay (SSP)
Statutory Sick Pay (SSP) is paid by employers to employees who are off work
due to sickness or disability for four days or longer, providing their average
weekly earnings are above the level at which NICs are payable.
SSP is paid for a maximum number of weeks in any spell of sickness. Spells of
sickness with less than a minimum number of weeks between them count as
one spell. Amounts paid as SSP are subject to tax and to NI deductions, just as
normal earnings would be
SSP rate
Claimant can get £109.40 per week Statutory Sick Pay ( SSP ) if you’re too ill to work. It’s paid by your employer for up to 28 weeks
