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CeMap 1 > Topic 5 > Flashcards

Topic 5 Flashcards

1
Q

What is the purpose of state benefits in financial planning?

A

State benefits acts as a safety net in times of need, helping individuals avoid extreme poverty BUT not supporting a comfortable living standard.

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2
Q

How do state benefits affect the amount of financial protection needed?

A

They reduce the need for additional financial cover by providing income or support in times of need.

The gap between required and existing cover (including state benefits) defines how much additional protection is needed.

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3
Q

What does “existing cover” include in financial planning?

A

It includes private insurance, employer benefits, and state benefits to which a person or their dependents are entitled.

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4
Q

How do financial circumstances impact entitlement to state benefits?

A

Means-tested benefits are reduced or withdrawn if a person’s income or assets exceeds specified thresholds, affecting eligibility for benefits like Universal Credit.

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5
Q

What are means-tested benefits?

A

These are benefits where the amount received depends on an individual’s or household’s income and savings, with reduced entitlement for those with higher financial resources.

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6
Q

How might a financial plan reduce state benefits entitlement?

A

A plan that increases income or assets could reduce or eliminate means-tested benefits, making the financial plan less attractive due to loss of state support.

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7
Q

Why are state benefits often small in amount?

A

Most state benefits are designed to prevent extreme poverty rather than provide a comfortable lifestyle, so they typically offer a minimal financial assistance.

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8
Q

How should state benefits be factored into a financial plan?

A

They should be considered as part of the existing cover, reducing the need for private insurance, while also noting their potential reduction due to increases in income or assets.

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9
Q

What is the relationship between state benefits and private financial protection?

A

State benefits fill part of the protection gap, meaning private financial protection plans must ONLY cover what the state does not, helping clients avoid over-insuring.

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10
Q

Can increasing a person’s assets affect their state benefits?

A

Yes.

Increasing assets or income can reduce or disqualify them from receiving means-tested benefits.

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11
Q

Why would a person’s financial situation affect their eligibility for state benefits?

A

If a person’s income or assets exceed certain limits, they may receive reduced or no means-tested benefits.

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12
Q

What is universal credit?

A

Universal Credit is a means-tested benefit for people of working age, replacing several existing benefits and sampling the welfare system.

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13
Q

Who is eligible for Universal Credit?

A

People of working age, up until state pension age, based on their income and personal/financial circumstances.

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14
Q

How is the amount of Universal Credit determined?

A

The amount is based on a basic allowance, with additional amounts for those with:

  1. Disabilities
  2. Caring responsibilities
  3. Children
  4. Housing costs
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15
Q

What is the ‘earnings disregard’?

A

The earnings disregard is the amount of income claimants can earn before their Universal Credit is reduce, and it varies based on the claimant’s needs.

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16
Q

How does Universal Credit help people avoid switching between different benefits?

A

By combining multiple benefits into one system, Universal Credit eliminates the need for claimants to transfer benefits as their employment status OR circumstances change.

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17
Q

Why might a claimant with children receive a higher earnings disregard?

A

Because Universal Credit takes into account the increased financial needs of claimants with children.

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18
Q

How does Universal Credit support individuals with disabilities or childcare responsibilities?

A

It offers additional allowances on top of the basic Universal Credit to cover the extra costs related to disabilities or childcare.

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19
Q

Why is there a maximum cap on Universal Credit benefits?

A

The cap is set to ensure that total state benefits do not exceed the average earnings of a working family, including Child Benefit.

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20
Q

Which benefits remain outside of Universal Credit?

A
  1. Carer’s Allowance
  2. new style Jobseeker’s Allowance
  3. Employment and Support Allowance
  4. Disability Living Allowance
  5. Personal Independence Payment
  6. Child Benefit
  7. Statutory Sick Pay
  8. Statutory Maternity Pay
  9. Maternity Allowance
  10. Attendance Allowance
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21
Q

Why is Attendance Allowance not part of Universal Credit?

A

Its for those over state pension age

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22
Q

What is the status of Universal Credit implementation?

A

Full implementation will take a few more years

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23
Q

How do Carer’s Allowance and Disability Living Allowance differ from Universal Credit?

A

They target specific needs like caregiving and disability, while Universal Credit is broader

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24
Q

Why might Child Benefit and Statutory Maternity Pay stay separate from Universal Credit?

A

They serve specific groups outside the means-tested system.

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25
Q

How do ‘new style’ Jobseeker’s Allowance and Employment and Support Allowance differ from Universal Credit?

A

They are based on National Insurance contributions, not means testing.

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26
Q

What challenges might the Universal Credit rollout create for existing claimants?

A

They will need to transition to the new system gradually.

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27
Q

What is Working Tax Credit?

A

Working Tax Credit tops up the earnings of low-income employed or self-employed people

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28
Q

Who is eligible for extra amount of Working Tax Credit?

A

Working households with a disability or qualifying childcare costs are eligible for extra amounts

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29
Q

Has Working Tax Credit been replaced?

A

Yes.

It has been replaced by Universal Credit, and new claims can only be made by those already receiving Child Tax Credit.

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30
Q

How does Working Tax Credit support working households with disabilities?

A

It provides extra financial support to help cover the additional costs associated with disabilities.

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31
Q

Why might some people still claim Working Tax Credit despite the transition to Universal Credit?

A

Those already receiving Child Tax Credit may still claim Working Tax Credit

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32
Q

How does Universal Credit differ from Working Tax Credit?

A

Universal Credit replaces multiple benefits, including Working Tax Credit, simplifying the system for claimants

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33
Q

What is Income Support?

A

Income Support is a tax-free benefit for people aged 16 to state pension age with income below a certain level, WORKING LESS THAN 16h 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.

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34
Q

Who is eligible for Income Support?

A

People with no income or low income who work LESS than 16h per week or whose partner works less than 24h per week, and meet other requirements

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35
Q

Can new claims for Income Support still be made?

A

No.

New claims cannot be made, BUT people can for Universal Credit instead.

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36
Q

How does Income Support help those with low income?

A

Its provides financial assistance to people whose income is below a certain level, either as a primary benefit or top-up

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37
Q

Why are existing Income Support claims still valid?

A

Existing claims continue for individuals who still meet the eligibility criteria, despite the closure to new applications

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38
Q

What option is available for people who would have qualified for Income Support?

A

People can apply for Universal Credit, which has replaced Income Support for new claimants.

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39
Q

What is Jobseeker’s Allowance (JSA)?

A

JSA is a benefit for people who are unemployed or working less than 16h and are actively seeking work

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39
Q

What are the two types of JSA?

A
  1. ‘New Style’ JSA
  2. Income-based JSA
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40
Q

Who is eligible for New Style JSA?

A

Those who have paid sufficient Class 1 National Insurance contributions.

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41
Q

Is JSA taxable?

A

Yes.

New style JSA is paid gross but is taxable.

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42
Q

Why is income-based JSA being replaced?

A

Income-based JSA is being replaced by Universal Credit to simplify the benefits system.

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43
Q

How long can someone receive new style JSA?

A

New style Jobseeker’s Allowance is paid for a maximum of 6 months

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44
Q

What additional benefit do claimants of new style JSA receive?

A

Claimants are credited with National Insurance contributions for each week they receive JSA

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45
Q

What is Support for Mortgage Interest (SMI)?

A

SMI is a loan for people certain benefits to help pay the interest on their mortgage, which must be repaid.

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46
Q

Who is eligible for SMI?

A

People receiving one of the following:

  1. Income Support;
  2. Income-related Jobseeker’s Allowance;
  3. Income-relate Employment and Support Allowance;
  4. Universal Credit;
  5. Pension Credit
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47
Q

Does SMI cover mortgage capital or associated costs?

A

No.

SMI only covers mortgage interest.

It does NOT cover capital, insurance premiums or arrears.

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48
Q

How is the SMI loan repaid?

A

The loan is repaid when the property is sold or ownership is transferred

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49
Q

Why might someone need SMI?

A

SMI provides assistance to help cover mortgage interest payments for those on low incomes or certain benefits.

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50
Q

How is the SMI loan secured on the property?

A

The loan is secures as a second charge on the property, which must be repaid with interest when the property is sold or transferred.

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51
Q

Why doesn’t SMI pay for mortgage capital or arrears?

A

SMI is intended solely to assist with interest payments, ensuring the claimant can maintain their mortgage without covering other associated costs.

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52
Q

What is the benefits cap?

A

The benefits cap limits the maximum weekly income a household can receive from benefits to the level of the average UK wage.

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53
Q

Why was the benefits cap introduced?

A

It was introduced to prevent people being better off out of work by claiming benefits compared to working.

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54
Q

Which benefits are subject to the cap?

A

Benefits subject to the cap include:

  1. Employment and Support Allowance
  2. Income Support
  3. Jobseeker’s Allowance
  4. Housing Benefit
  5. Maternity Allowance
  6. Child Benefit
  7. Child Tax Credit
  8. Bereavement Allowance
  9. Incapacity Benefit
  10. Severe Disablement Allowance
  11. Universal Credit (unless deemed unfit for work)
  12. Widowed Parent’s Allowance
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55
Q

What does SMI cover?

A

SMI covers only the interest on a mortgage, not capital repayments, insurance premiums, or arrears

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56
Q

What is the upper mortgage threshold for SMI?

A

SMI pays interest on mortgages up to an upper threshold, with a lower threshold for claimants of Pension Credit

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57
Q

At what rate does SMI pay the mortgage interest?

A

SMI pays interest at a standard mortgage rate, which may differ from the actual mortgage rate

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58
Q

Who receives the SMI payments?

A

Payments are made directly to the mortgage lender

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59
Q

What form does the SMI assistance take?

A

SMI is provided as a loan, which must be repaid with interest.

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60
Q

When is the SMI loan repaid?

A

The SMI loan is repaid when the property is sold or the ownership is transferred

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61
Q

How is the SMI loan secured?

A

The loan is secured on the property by way of second charge

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62
Q

Why doesn’t SMI cover mortgage arrear or capital repayment?

A

SMI is intended to help with interest payments only, ensuring claimants can maintain their mortgage but not cover other associated costs.

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63
Q

How does the repayment of the SMI loan work when the property is sold?

A

The SMI loan, along with any accrued interest, must be repaid in full upon the sale or transfer of ownership of the property

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64
Q

Why might the standard mortgage rate used by SMI differ from the claimant’s actual mortgage rate?

A

The standard mortgage rate is set by the government and may not always match the rates set by individual lenders.

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65
Q

Can people claim Universal Credit if they are working?

A

Yes.

Universal Credit is available to people whether they are in or out of work, depending on their income and circumstances.

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66
Q

How does Universal Credit adjust with changes in income?

A

As earnings increase, Universal Credit payments decrease based on a taper rate, ensuring the benefit adjusts to the individual’s financial situation.

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67
Q

What happens to existing claimants of benefits being replaced by Universal Credit?

A

Existing claimants will gradually be moved to Universal Credit as it is fully implemented

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68
Q

Why might someone voluntarily pay Class 2 NICs after April 2024?

A

People with low profits or those wanting to access contributory benefits, such as the state pension, may choose to voluntarily pay Class 2 NICs

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69
Q

What distinguishes Class 1 NICs paid by employees from those paid by employers?

A

Employees pay NICs on earnings between the primary threshold and the upper earnings limit, while employers pay NICs on earning above the secondary threshold with no upper limit.

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70
Q

Why might a person pay Class 3 NICs?

A

Class 3 NICs are voluntary contributions paid by individuals to ensure they qualify for the full state pension or to cover gaps in their National Insurance record.

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71
Q

Why is the SMI only a loan and not a grant?

A

SMI is designed to be repaid, with interest, when the property is sold or ownership is transferred, ensuring the loan is recovered

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72
Q

What determines whether a person is eligible for SMI?

A

SMI is available to individuals receiving certain income-related benefits such as:

  1. Universal Credit
  2. Income Support
  3. Pension Credit
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73
Q

How does new style JSA differ from income-based JSA?

A

New style JSA is based on National Insurance contributions;

While Income-based JSA is means-tested and has been replaced by Universal Credit for new claimants.

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74
Q

How are National Insurance contributions handled for JSA claimants?

A

Claimants of new style JSA are credited with National Insurance contributions for every week they receive the benefit

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75
Q

Can new claims be made for Working Tax Credit?

A

No.

New claims for Working Tax Credit cannot be made, except by those ALREADY receiving Child Tax Credit.

Universal Credit now replaces Working Tax Credit.

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76
Q

Why can’t new claims for Income Support be made?

A

Income Support is being phased out and replaced by universal credit for new claimants.

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77
Q

How does the benefit cap affect larger households?

A

Larger households receiving multiple benefits may have their total benefits limited to the cap, ensuring they do not exceed the average UK wage.

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78
Q

What happens if someone receives benefits over the cap limit?

A

The total benefits received are reduced to align with the cap, ensuring benefits do not exceed the designated threshold

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79
Q

What is Statutory Maternity Pay (SMP)?

A

SMP is a benefit paid to employed women who are pregnant, provided certain conditions are met, and it is paid by their employer.

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80
Q

What are the eligibility criteria for SMP?

A

To be eligible, a woman must have:

  1. Average weekly earnings above a certain threshold, and;
  2. Have worked continuously for her employer for at least 26 weeks before the ‘qualifying week’; Which is the 15th week before the week in which their baby is due
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81
Q

How long is SMP payable?

A

SMP is payable for up to 39 weeks, starting as early as 11 weeks before the baby is due and the latest is when the baby is born

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82
Q

What are the rates of SMP?

A

Initially, SMP is based on a percentage of average weekly earnings, followed by a flat rate or a lower percentage of earnings for the remaining period

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83
Q

Is SMP subject to tax and NICs?

A

Yes.

SMP is taxable, and National Insurance contributions are due on the amount paid.

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84
Q

Why might a woman not qualify for SMP even if she is employed?

A
  1. If her average weekly earnings are below the required threshold…

OR

  1. If she hasn’t worked for her employer for the required 26 weeks before the qualifying week…

…She wouldn’t qualify.

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85
Q

How does the timing of SMP payments work?

A

SMP can begin up to 11 weeks before the baby is due but must start by the time the baby is born.

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86
Q

Why is SMP taxed and subject to NICs?

A

SMP is considered part of an employee’s earnings, making it subject to the usual income tax and National Insurance deductions.

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87
Q

How does the percentage of average weekly earnings impact SMP payments?

A

Initially, SMP is based on a percentage of the employee’s earnings, providing financial support relative to their normal income, but late switches to a flat rate or a lower percentage.

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88
Q

What is the qualifying week for SMP?

A

The qualifying is the 15th week before the baby is due

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89
Q

What happens if the employee’s earnings are lower during the SMP period?

A

After the initial period, SMP is paid at a standard flat rate or a percentage of the employee’s average weekly earnings, whichever is lower.

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90
Q

How does SMP differ between the initial and remaining payment periods?

A

In the initial period, SMP is a percentage of the employee’s average weekly earnings;

While for the remaining period, it drops to a flat rate or a lower percentage.

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91
Q

Can SMP be started later than 11 weeks before the baby is due?

A

Yes.

BUT the latest it can stat is when the baby is born.

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92
Q

Why might a woman’s SMP be lower during the later weeks of maternity leave?

A

SMP moves from a percentage of average weekly earnings to a flat rate or lower percentage, reducing the amount paid in the later weeks.

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93
Q

Why is the qualifying week important for SMP eligibility?

A

The qualifying week determines whether the employees has been working long enough (min. 26h) to be eligible for SMP.

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94
Q

What’s the significance of SMP being based on a percentage of weekly earnings initially?

A

This provides greater financial support at the start of maternity leave when income needs might be higher, with a reduction later.

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95
Q

What is Maternity Allowance?

A

Maternity Allowance is a benefit for women who are NOT eligible for Statutory Maternity Pay (SMP), including the self-employed and those who have recently stopped working.

96
Q

Who pay Maternity Allowance?

A

Maternity Allowance is paid by the Department for Work and Pensions (DWP), NOT by employers.

97
Q

What is the maximum duration for receiving Maternity Allowance?

A

Maternity Allowance is payable for up to 39 weeks.

98
Q

Is Maternity Allowance subject to tax or National Insurance contributions?

A

No.

Maternity Allowance is not subject to tax or NICs

99
Q

When can Maternity Allowance payments begin?

A

Payments can start as early as 11 weeks before the baby is due, but NO LATE THAN then baby’s birth.

100
Q

Why might someone be eligible for Maternity Allowance instead of SMP?

A

Women who are self-employed, have recently stopped working, or changed jobs may not qualify for SMP and can claim Maternity Allowance instead.

101
Q

How does Maternity Allowance differ from SMP?

A

Unlike SMP, Maternity Allowance is paid by the DWP, not employers, and is not subject to tax or NICs

102
Q

Why is employment status important for Maternity Allowance eligibility?

A

The amount of Maternity Allowance payable depends on the claimant’s employment status, such as being self-employed or recently stopped working

103
Q

What is the significance of the start date for Maternity Allowance?

A

Like SMP, Maternity Allowance offers flexibility by allowing payments to start up to 11 weeks before the baby is due, ensuring early financial support.

104
Q

Who is eligible for Maternity Allowance?

A

Women who are NOT eligible for SMP:

  1. Self-employed
  2. Recently stoped working
  3. Those who do not meet SMP criteria
105
Q

How is the amount of Maternity Allowance determined?

A

The amount is based on the claimant’s employment status, such as whether they are employed, self-employed, or recently stopped working.

106
Q

Why might a woman not qualify for Maternity Allowance?

A

A woman might not qualify if she does not meet the relevant eligibility criteria, such as insufficient work history during her test period.

107
Q

How does Maternity Allowance ensure financial support for self-employed women?

A

Maternity Allowance provides an alternative to SMP, specifically designed to help self-employed women who wouldn’t be eligible for employer-based maternity benefits

108
Q

Why might some women receive Maternity Allowance instead of SMP after changing jobs?

A

If a woman recently changed jobs, and hasn’t worked for the new employer long enough to qualify for SMP, she may be eligible for Maternity Allowance.

109
Q

What is Child Benefit?

A

Child Benefit is a tax-free benefit available to parents or guardians responsible for raising a child, regardless of National Insurance contributions

110
Q

Who is eligible for Child Benefit?

A

Parents or guardians with a child under 16, or up to 19 if the child is in full-time education or an approved training programme, are eligible for Child Benefit

111
Q

Is Child Benefit affected by receiving other benefits?

A

No.

Child Benefit is not affect by the receipt of other benefits

112
Q

What is the high-income tax charge on Child Benefit?

A

If either partner in a couple has adjusted net income over a certain threshold, the charge reduces Child Benefit by 1% for every £100 above the threshold.

113
Q

How is the Child Benefit high-income tax charge collected?

A

The charge is collected through self-assessment

114
Q

Can the high-income tax charge be reduced?

A

Yes.

The charge can be reduced or eliminated by making extra personal pension contributions or charitable donations, which lower adjusted net income.

115
Q

Why is there a high-income tax charge on Child Benefit?

A

The charge is designed to limit the benefit for higher-income households by reducing or eliminating Child Benefit if a partner’s income exceeds a certain threshold.

116
Q

How can parents with higher incomes avoid losing Child Benefit?

A

By reducing their adjusted net income through personal pension contributions or charitable donations, parents can reduce or eliminate the tax charge on Child Benefit

117
Q

Why is a higher rate of Child Benefit paid for the eldest child?

A

A higher rate for the eldest acknowledges the potentially higher initial costs of raising a first child

118
Q

What happens if both partners in a couple have incomes above the Child Benefit threshold?

A

The tax charge is assessed based on their income of the two

119
Q

What is the threshold for the high-income tax charge on Child Benefit?

A

The threshold is £50,000 of adjusted net income, after which the high-income tax charge begins to apply

120
Q

How much is the Child benefit for the eldest child and subsequent children?

A

The Child Benefit is paid at a higher rate for the eldest child and a lower rate for each additional child.

The exact amounts vary and should be checked based on current rates.

121
Q

When does Child Benefit stop?

A

Child Benefit stops when the child turns 16, or 19 if they are in full-time education OR on an approved training programme.

122
Q

Why is the high-income tax charge applied based on adjusted net income rather than household income?

A

The charge is designed to target individuals with higher incomes rather than the household income, even though it affect the household’s Child Benefit

123
Q

How does the 1% tax charge work for every £100 above the threshold?

A

The 1% tax charge means that for every £100 of adjusted net income over £50,000, the amount of Child Benefit you receive is reduced by 1%.

Here’s how it works:

Threshold: If your adjusted net income is above £50,000, you start to pay the high-income Child Benefit tax charge.

Reduction: For every £100 your income exceeds £50,000, the tax charge reduces the amount of Child Benefit by 1%.

Example:
If your income is £51,000, it’s £1,000 over the threshold.
That’s 10 lots of £100, so 10% of your Child Benefit is subject to the tax charge.

Full Charge: Once your income reaches £60,000, the charge becomes 100% of the Child Benefit, meaning the tax charge equals the total amount of Child Benefit you receive, effectively cancelling out the benefit.

So, the more your income exceeds £50,000, the more Child Benefit is reduced, until it’s fully taxed at £60,000.

124
Q

How do extra pension contributions reduce the high-income tax charge?

A

Extra personal pension contributions reduce adjusted net income, which in turn lowers or eliminates the high-income tax charge on Child Benefit

125
Q

What is Child Tax Credit?

A

Child Tax Credit is financial assistance for people responsible for raising children and on low incomes

126
Q

Who can claim Child Tax Credit?

A
  1. Those responsible for a child under 16 or;
  2. A child under 20 in eligible education or training
127
Q

What factors determine the amount of Child Tax Credit received?

A

The amount depends on the claimant’s income, the number of children, and whether any children have disabilities

128
Q

Has Child Tax Credit been replaced by Universal Credit?

A

Yes.

Child Tax Credit has been replaced by Universal Credit, and new claims can only be made by those already receiving Working Tax Credit.

129
Q

Why might someone still be claiming Child Tax Credit?

A

Individuals who are already claiming Working Tax Credit may still be eligible to claim Child Tax Credit

130
Q

How does income affect the amount of Child Tax Credit?

A

The amount of Child Tax Credit decreases as the individual’s income increases, with higher amounts available to those on lower incomes

131
Q

Why is Child Tax Credit divided into different payment elements?

A

The different elements ensure that financial support can be adjusted based on specific needs, such as the number of children or whether a child has a disability

132
Q

What has replaced Child Tax Credit for new claimants?

A

New claimants must apply for Universal Credit, which has replaced Child Tax Credit.

133
Q

What are the ‘elements’ in Child Tax Credit?

A

The elements are different types of payments that make up Child Tax Credit, based on:

  1. Income
  2. Number of children
  3. If any children have disabilities
134
Q

Who processes Child Tax Credit claims?

A

HMRC processes Child Tax Credit claims

135
Q

What happens to existing Child Tax Credit claimants now that it has been replaced by Universal Credit?

A

Existing Child Tax Credit claimants can continue to receive it, but new clams cannot be made unless they are already claiming Working Tax Credit.

136
Q

Why is Child Tax Credit being replaced by Universal Credit?

A

Universal Credit was introduced to simplify the benefits system by combining multiple benefits, including Child Tax Credit, into one.

137
Q

How might having a disabled child affect the amount of Tax Credit?

A

Additional elements are available for parents of disabled children, increasing the overall amount of Child Tax Credit received.

138
Q

What is the impact of income on Child Tax Credit eligibility?

A

As income increases, the amount of Child Tax Credit decreases, and high-income households may not qualify at all.

139
Q

Jane 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:

a) become ineligible for Child Benefit, as one of their incomes is
over the threshold.

b) not be liable to an income tax charge as one of their incomes is
still under the threshold.

c) be liable to an income tax charge as one of their incomes is
over the threshold.

d) be entitled to an increased amount of Child Benefit as one of
their incomes is under the threshold.

A

Answer: C

Explanation:
Child Benefit is subject to the high-income Child Benefit tax charge when one partner’s adjusted net income exceeds £50,000.

In this case, since Jane’s income is £57,000 (over the threshold), they will be liable for the tax charge based on her income, even though John earns below the threshold.

140
Q

What is Statutory Sick Pay (SSP)

A

SSP is a benefit paid by employers to employees who are off work due to sickness or disability for 4 days or more as long as their average weekly earnings are above the threshold for Class 1 NICs.

141
Q

What is the minimum period an employee must be off work to qualify for SSP?

A

Employees must be off work due to sickness or disability for at least 4 CONSECUTIVE DAYS to qualify for SSP

142
Q

Is Statutory Sick Pay (SSP) subject to tax and NICs?

A

Yes.

SSP is subject to income tax and Class 1 NICs, just like normal earnings.

143
Q

For how long is SSP payable?

A

SSP is payable for a maximum number of weeks in any given spell of sickness

144
Q

How are multiple sickness periods treated under SSP?

A

If periods of sickness are separated by less than a minimum number of weeks, they are treated as one continuous spell of sickness

145
Q

Why is SSP subject to income tax and NICs?

A

Since SSP is paid by employers and considered part of normal earnings, it is subject to the same tax and NICs contributions as regular wages

146
Q

How does SSP ensure support for employees with repeated sickness absences?

A

SSP treats multiple sickness absences separated by short intervals as one continuous spell.

This allows employees to continue receiving support without restarting the eligibility process.

147
Q

Why must an employee’s earnings be above the NICs threshold to receive SSP?

A

The NICs threshold ensures that SSP is only provided to employees with sufficient income levels to be liable for NICs.

148
Q

How does the maximum period for SSP affect long-term sickness?

A

Once SSP reaches the maximum payment duration, employees must seek alternative benefits (i.e., ESA, etc) if they remain unable to work

149
Q

What is Employment and Support Allowance (ESA)?

A

ESA is a benefit for people who are ill or disabled, helping them financially while they are unable to work due to their health condition.

150
Q

What are the two types of ESA?

A

The 2 types are:

  1. New Style ESA; Which is based on National Insurance contributions and is taxable.
  2. Income-based ESA; Which is means-tested but NOT taxable.
151
Q

What is the purpose of the work capability assessment in ESA?

A

To determine how a person’s health affects their ability to work and places them into either a work-related activity group OR support group.

152
Q

How are claimants in the work-related activity group treated differently from those in the support group?

A
  1. Claimants in the work related group are expected to take steps to move towards employment.
  2. However, claimants in the support group are recognised as having a severely limiting health condition that prevents them from working.
153
Q

Has income-based ESA been replaced?

A

Yes.

Income-based ESA has been replaced by Universal Credit.

No new claims can be made.

Existing claimants can continue receiving payments if eligible.

154
Q

What are the 2 types of ESA?

A
  1. New Style ESA: Is based on NI contributions.
  2. Income-based ESA: Provided support to those with low income, without regard to NI contributions
155
Q

How does the work capability assessment affect the amount of ESA received?

A

The assessment places claimants in either:

  1. Work-related activity group: Which has a lower benefit rate

OR

  1. Support group: Which has a higher rate due to the claimant’s more severe health limitations
156
Q

Why is income-based ESA not taxable, while new style ESA is taxable?

A

Income-based ESA is means-tested and designed for people with lower income

Whilst New Style ESA is treated more like a replacement income and is therefore taxable.

157
Q

How does the initial assessment period impact ESA payments?

A

During the initial assessment period, claimants receive a lower rate of ESA until their eligibility is fully assessed and they are placed into either the work-related activity group OR support group

158
Q

What is Attendance Allowance?

A

Attendance Allowance is a benefit for people who have reached state pension age and need help with personal care due to sickness or disability

159
Q

Is Attendance Allowance means-tested or based on National Insurance contributions?

A

No.

Attendance Allowance is NOT means-tested, and it does not depend on National Insurance contributions.

160
Q

What are the two rates of Attendance Allowance?

A
  1. There is a lower rate for people needing help with personal care by day OR by night

And

  1. A higher rate for those needing help both day AND night.
161
Q

Can receiving Attendance Allowance increase other state benefits?

A

Yes.

Benefits like Pension Credit, Housing Benefit, and Council Tax Reduction may be paid at a higher rate if the claimant receives Attendance Allowance

162
Q

Why is Attendance Allowance not means-tested?

A

Attendance Allowance is designed to support elderly individuals based on their care needs rather than their financial situation, making it accessible regardless of income.

163
Q

How does receiving Attendance Allowance affect other benefits?

A

Receiving Attendance Allowance can increase the amount of other benefits, such as Pension Credit and Housing Benefit, as it indicates a higher level of care needs.

164
Q

Why might someone receive the higher rate of Attendance Allowance?

A

Someone would receive the higher rate if they need help with personal care both during the day and at night due to more severe health conditions.

165
Q

What types of personal care qualify someone for Attendance Allowance?

A

Personal care needs may include help with activities such as washing, dressing, eating or using the toilet

166
Q

What is Disability Living Allowance (DLA)?

A

DLA is a tax-free benefit for people who need help with personal care and/or getting around due to a disability.

167
Q

Who can continue to claim DLA?

A

People born on or before 8th April 1948

168
Q

What benefits is replacing DLA for people aged 16 to state pension age?

A

DLA is being replaced by Personal Independence Payment (PIP) for people aged between 16 and state pension age.

169
Q

What are the two components of DLA and PIP?

A

Both DLA and PIP have two components:

  1. Care component: For help with daily activities like washing or dressing
  2. Mobility component : For people who have difficulty walking or cannot walk
170
Q

Who must apply for PIP or Attendance Allowance?

A

People born AFTER 8th April 1948 need to apply for:

PIP - IF aged between 16 and state pension age

Attendance Allowance - IF aged over the state pension age

171
Q

Why is DLA being replaced by PIP?

A

PIP is a more modern and streamlined benefit intending to replace DLA for people aged 16 to state pension age.

It aims to ensure that support is better targeted to the needs of individuals with disabilities

172
Q

What is the purpose of the care component in DLA and PIP?

A

Care component: Provides financial support for individuals who need assistance with daily activities.

Examples: Personal hygiene, dressing, or cooking meals

173
Q

How does the mobility component help individuals?

A

The mobility component offers financial support to individuals who have difficulty walking or cannot walk at all, helping them manage transportation and movement

174
Q

Why might someone need to apply for Attendance Allowance instead of PIP?

A

People who are over the state pension age

175
Q

What is a Carer’s Allowance (CA)?

A

Its a benefit for individuals who care for someone who is sick or disabled, and it is not required that they be a relative of the person receiving care.

176
Q

Is Carer’s Allowance dependent on National Insurance contributions?

A

No.

177
Q

Is Carer’s Allowance taxable?

A

Yes.

Carer’s Allowance is taxable and must be declared on tax returns.

178
Q

Can Carer’s Allowance affect other benefits?

A

Yes.

  1. Claiming Carer’s Allowance can impact other benefits for both the carer;
  2. And the person they are caring for.
179
Q

Why might someone qualify for Carer’s Allowance if they are not related to the person they care for?

A

Carer’s Allowance is designed to support anyone providing care for sick or disabled person, regardless of their relationship, ensuring that caregivers can receive financial support for their role.

180
Q

How does Carer’s Allowance affect the benefits of the carer?

A

Claiming Carer’s Allowance can reduce or change other benefits, such as income-related benefits, BECAUSE it is considered taxable income

181
Q

How does Carer’s Allowance impact the person receiving care?

A

The person receiving care may see adjustments in their benefits if the carer claims Carer’s Allowance, as it might affect means-tested benefits

182
Q

Why must Carer’s Allowance be declared on tax returns?

A

Because it is taxable income

183
Q

What happens to state benefits when someone is in the hospital?

A

In general, state benefits continue to be paid when someone goes into hospital, although some of their needs may be met by the NHS.

184
Q

Why do some needs shift from state benefits to the NHS when a person is in the hospital?

A

The NHS takes responsibility for providing medical care and some personal care needs.

Therefore, reducing the reliance on certain state benefits during a hospital stay.

185
Q

What is the state pension age?

A

The state pension age is the age at which individuals can start receiving their state pension.

It is regularly reviewed based on changes in life expectancy, with plans to increase it to 68 between 2037 and 2039.

186
Q

what is the difference between the old and new state pension systems?

A

BEFORE April 2016, the state pension consisted of a basic pension and an additional earnings-related element for employees.

AFTER April 2016, the new state pension has no earnings-related element.

187
Q

Who receives the new state pension?

A

Those reaching state pension age on or after April 6th 2016 receive the new state pension, with adjustments made if they would have been better off under the old system.

188
Q

How is the state pension funded?

A

The state pension operates on a pay-as-you-go basis, where National Insurance contributions from the current working population are used to pay pensions to retirees.

189
Q

Why is the state pension age regularly reviewed?

A

The state pension age is reviewed to ensure that people spend approximately one-third of their adult life in retirement, taking into account changes in life expectancy.

190
Q

Why was the new state pension introduced in 2016?

A

The new state pension was introduced to simplify the system and remove the earnings-related element.

191
Q

What happens if someone would have been better off under the old state pension system?

A

If a person reaching state pension age after 6 April 2016 would have been better off under the old system, they receive an adjustment to compensate for the difference.

192
Q

How does the pay-as-you-go system affect the sustainability of state pensions?

A

As the number of pensioners increases and the working population decreases, the pay-as-you-go system faces challenges in funding generous state pensions, limiting the scope for significant increases.

193
Q

Why is the state pension age regularly reviewed?

A

The state pension age is reviewed to ensure that people spend approximately one-third of their adult life in retirement, taking into account changes in life expectancy.

194
Q

What is the basic state pension?

A

The basic state pension was originally a non-earnings-related pension paid to employed people upon retirement, later extended to self-employed individuals and those who made sufficient National Insurance (NI) contributions.

195
Q

How many years of National Insurance contributions are required for a full basic state pension?

A

At least 30 years of National Insurance contributions are required for a full basic state pension.

196
Q

What happens if someone does not have enough National Insurance contributions for a full state pension?

A

Those who do not have enough contributions may receive a reduced pension, or a ‘Category B’ pension based on their spouse or civil partner’s contributions.

197
Q

What is a ‘Category B’ pension?

A

A ‘Category B’ pension is a state pension available to individuals based on their spouse or civil partner’s pension entitlement when they have insufficient contributions of their own.

198
Q

Why was the basic state pension extended to the self-employed?

A

It was extended to the self-employed to ensure they also received retirement benefits based on their National Insurance contributions, making the pension system more inclusive.

199
Q

How does insufficient National Insurance contributions affect the basic state pension?

A

If someone has fewer than 30 years of contributions, they receive a reduced basic state pension, depending on how many years they contributed.

200
Q

Why might someone receive a ‘Category B’ pension instead of a pension based on their own contributions?

A

Someone may receive a ‘Category B’ pension if their own National Insurance contributions were insufficient to qualify for a full state pension, allowing them to rely on their spouse or civil partner’s contributions.

201
Q

How did the basic state pension differ from other earnings-related pensions?

A

The basic state pension was not related to earnings; it was based solely on National Insurance contributions, unlike earnings-related pensions that increase with higher earnings.

202
Q

What is the additional state pension?

A

It’s an earnings-related pension for employees who reached state pension age before 6 April 2016, on top of the basic state pension.

203
Q

What schemes provided the additional state pension?

A

The graduated pension scheme, SERPS, and the state second pension (S2P).

204
Q

Was the additional state pension available to the self-employed?

A

No

It was only available to employed people who paid Class 1 NICs.

205
Q

What is ‘contracting-out’ of SERPS/S2P?

A

Contracting-out allowed employees to redirect or reduce NICs to an alternative pension instead of SERPS/S2P.

206
Q

Why did the additional state pension schemes change?

A

To improve benefits, especially for lower earners.

207
Q

How did contracting-out affect pensions?

A

It reduced or replaced SERPS/S2P benefits with private pension contributions.

208
Q

Why was the additional state pension only for employed people?

A

It was based on Class 1 NICs, which only employed individuals pay.

209
Q

How did the additional state pension differ from the basic state pension?

A

The basic pension was flat-rate, while the additional was earnings-related.

210
Q

Why was the additional state pension replaced?

A

It was replaced to simplify the state pension system and remove the earnings-related component.

211
Q

How did contracting out benefit employees?

A

Contracting out allowed employees to build private pension benefits, potentially offering more flexibility than SERPS/S2P.

212
Q

When was the additional state pension replaced by the new state pension?

A

The additional state pension was replaced by the new state pension for those reaching state pension age on or after 6 April 2016.

213
Q

What happens to those who contracted out of SERPS/S2P when they reach state pension age?

A

Those who contracted out receive a reduced additional state pension, but they may have additional private pension benefits.

214
Q

What is Pension Credit?

A

Pension Credit is a benefit that helps low-income retirees, consisting of Guarantee Credit and Savings Credit.

215
Q

What is Guarantee Credit?

A

Guarantee Credit tops up an individual’s weekly income to a minimum amount.

216
Q

What is Savings Credit?

A

Savings Credit is an additional payment for people who reached state pension age before 6 April 2016 and have savings for retirement.

217
Q

Is Pension Credit taxable?

A

No

Pension Credit is not taxable.

218
Q

Who is eligible for Savings Credit?

A

People who reached state pension age before 6 April 2016 and have retirement savings.

219
Q

Why was Pension Credit introduced?

A

To provide financial support to low-income retirees and incentivize saving for retirement.

220
Q

When was the new state pension introduced?

A

The new state pension was introduced for those reaching retirement age on or after 6 April 2016.

221
Q

What determines eligibility for the new state pension?

A

Eligibility is based on an individual’s National Insurance (NIC) record.

222
Q

How many years of NICs are needed for the full new state pension?

A

Individuals need 35 years of NICs to receive the maximum pension.

223
Q

Is there an earnings-related element in the new state pension?

A

No

The new state pension does not have an additional earnings-related element.

224
Q

Can carers receive NIC credits under the new state pension?

A

Yes

Carers are credited with NICs under the new state pension.

225
Q

Why was the new state pension introduced?

A

To simplify the state pension system and remove the complexity of additional earnings-related benefits.

226
Q

What happens if someone has less than 10 years of NICs?

A

Those with less than 10 years of NICs are usually not eligible for any state pension.

227
Q

How is the new state pension more straightforward than the old system?

A

It has a single level of benefit based solely on an individual’s NIC record, without any earnings-related elements.

228
Q

What is the triple lock guarantee?

A

The triple lock guarantee ensures that the state pension increases each year by the highest of earnings, inflation, or 2.5%.

229
Q

What are the three measures used in the triple lock guarantee?

A

The three measures are

  1. Earnings (Average Weekly Earnings Index),
  2. Inflation (Consumer Prices Index),
  3. 2.5%.
230
Q

Which pensions are covered by the triple lock guarantee?

A

Both the basic state pension and the new state pension are covered by the triple lock guarantee.

231
Q

Why was the triple lock guarantee introduced?

A

It was introduced to ensure that pensioners’ incomes keep pace with rising costs and living standards.

232
Q

How does the triple lock guarantee benefit pensioners?

A

It guarantees that state pensions will increase annually, providing financial security by ensuring that pensions maintain or improve in real value.

233
Q

Why is the triple lock seen as a burden by the UK government?

A

It is considered costly for taxpayers, as it guarantees pension increases by the highest of three measures, which can result in significant government spending.

234
Q

What are the arguments against the triple lock?

A

The main arguments focus on its high cost and concerns about intergenerational fairness, as it benefits pensioners while younger generations may bear the tax burden.

235
Q

What modifications to the triple lock have been proposed?

A

A proposed modification is replacing the triple lock with a double lock based only on increases in earnings or the Consumer Prices Index (CPI).

236
Q

Why might intergenerational fairness be a concern with the triple lock?

A

Critics argue that while pensioners benefit from guaranteed increases, younger taxpayers may face a heavier burden, leading to potential inequality between generations.

237
Q

How would a double lock differ from the current triple lock?

A

A double lock would remove the guaranteed 2.5% increase, basing pension increases only on earnings or inflation (CPI), likely reducing costs.

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