Individual Income Protection: Your Guide to Employment and Support Allowance

October 2008 saw the launch of the Government’s new long awaited Employment and Support Allowance, the successor to State Incapacity Benefit.

In this guide for advisers, we recap on the background behind the allowance, what it means for potential claimants and how advisers should consider it when discussing Income Protection with their clients. The benefit figures detailed in the guide are correct for 2009/2010 tax and benefits year.

Background:

As you can see from the time line below, the reform process kicked off in January 2006. This followed increasing Government concern that more than 2.5 million people at that time were not working and claiming State Incapacity Benefit, and a stated aim to reduce this figure by 1 million people by 2015.

The road to reform …


Government Green Paper A new deal for Welfare	Welfare Reform Bill	Draft Regulations	Welfare Reform Act	Final Regulations	New Benefit Paid
January 06	July 06	January 07	May 07	March 08	October 08

The Government’s agenda

In its Green Paper, the Government recognised that “benefits trap people into a lifetime of dependency, and that the longer a person remains on benefits, the less chance they have of leaving”. It attributed much of the problem to the design of State Incapacity Benefit, which received the following criticisms:

Little is done to prevent people moving on to Incapacity Benefits
The gateway to benefits is poorly managed –with claimants receiving State Incapacity Benefit before satisfying the main medical test
There are perverse incentives – paying more the longer people claim
Almost nothing is expected of claimants andlittle support is offered

In addition, the Government’s Green Paper also commented that, “The very name of the benefit sends a signal that a person is incapable and that there is nothing that can be done.”

The new face of State welfare

The Government addressed these points within its blueprint for ‘Employment and Support Allowance’. They sought to reduce the number of new claimants by first using a series of measures to reduce the number being considered for benefits. Secondly, they introduced additional support for claimants with some capacity for work to help them retake their place in the workforce.

Eligibility for Employment and Support Allowance

Basic eligibility for the new allowance is by means testing or National Insurance contribution history. Eligibility established on the basis of previous National Insurance contributions requires contributions to have been paid in the two year period prior to claim, either as a result of their previous employment or by receiving National Insurance credits while acting as a Carer.

The Assessment Phase

The outline assessment framework builds on a number of other measures that the Government introduced alongside ESA to better manage the gateway to benefits and reduce the potential number of new claimants.

These measures include a review of the ‘Med 3’ or ‘sick-note form’ that GPs currently use to sign off patients from work. In 2008, Alan Johnson, Health Minister, indicated that he wanted GPs to take a lead in tackling the sick-note culture by urging GPs to issue ‘well notes’ that set out what tasks a worker can perform instead of certificates that automatically sign patients off.

When it comes to applying for ESA, potential claimants are asked to take part in a rigorous assessment which takes place during the first thirteen weeks of any claim.

During the assessment period, and as a shift in emphasis from the old assessment for State Incapacity Benefit, claimants no longer simply have to show the extent to which they are incapacitated, but also need to demonstrate the extent to which their condition or illness limits their ability to work.

Plus, unlike its predecessor long term State Incapacity Benefit which the Government criticised for paying full benefits before ESA assessment is completed, assessment for the new allowance is expected to be much more rigorously enforced and full benefits will not be paid until this has been completed. In the meantime, while being assessed, claimants receive a limited benefit known as the ‘Basic Allowance’ which is equivalent to the relevant age related amount paid under ‘Job Seeker’s Allowance’. For those aged 18 to 24, this is £50.95 per week, while those aged 25 and over will receive a slightly higher figure of £64.30 per week.

Assessment for ESA

The assessment phase not only provides an opportunity to separate those people who have grounds to claim from those who do not, but is also used to categorise claimants in terms of those who have ‘limited capability for work’ and those who have ‘limited capability for work related activity’.

The first of these categories refers to those claimants who have limited scope for work given the severity of their condition, while the second refers to those claimants who have a reasonable chance of re-entering the workforce, with appropriate support.

The Work Focused Health Related Assessment

The first stage of the assessment uses a ‘work focused health related assessment’. This is conducted by a registered health care professional, such as a Registered Medical Practitioner, Registered Nurse, Occupational Therapist or Physiotherapist.

It is used to evaluate the difficulties that are likely to be experienced as a result of the claimant’s physical or mental condition in relation to obtaining or remaining in work and how these might be managed or alleviated. Plus, claimants are asked for their views on how their condition may impact their ability to secure or remain in employment.

Claimants are given at least 7 days advance notice of the assessment which is either conducted in a medical centre, or where necessary in the claimant’s own home. Throughout, potential claimants are expected to fully engage with the assessment process, by attending assessment sessions as required, complying with
requests for information and by fully participating in discussion with a health care professional.

Benefits won’t be forthcoming if the claimant fails to attend an assessment or if they fail to provide any information they have been asked to provide within six weeks of when first requested.

Not all claimants are expected to take part in these assessments. The regulations allow for assessments to be deferred in some circumstances, for example where claimants are terminally ill, receiving or recovering from chemotherapy, suffering from certain diseases or where work represents a serious risk of damaging a pregnant woman’s unborn child.

Limited Capability for Work

To help confirm whether a claimant has ‘limited capability for work’, the extent of the claimant’s physical and mental functioning is assessed on their ability to perform any number of the activities listed below:


Part 1 - Physical Disabilities	Part 2 - Mental, Cognitive and Intellectual Function
1. Walking with a walking stick or other aid if such an aid is normally used	12. Learning or comprehension in the completion of tasks
2. Standing and sitting	13. Awareness of hazard
3. Bending or kneeling	14. Memory and concentration
4. Reaching	15. Execution of tasks
5. Picking up and moving or transferring the use of the upper body and arms	16. Initiating and sustaining personal action
6. Manual dexterity	17. Coping with change
7. Speech	18. Getting about
8. Hearing with a hearing aid or other aid if normally worn	19. Coping with social situations
9. Vision including visual acuity and visual fields, in normal daylight or bright electric light, with glasses or other aid to vision if such aid is normally worn	20. Propriety of behaviour with other people
10. Continence	21. Dealing with other people
11. Remaining conscious during waking moments

Where the claimant has difficulty in undertaking any one of these activities, the extent of their difficulty is assessed on a scale of zero to fifteen, by benchmarking the severity of the claimant’s conditions against a number of prescribed descriptors.

For example, if a claimant is being assessed for the first activity, they will be awarded the maximum 15 points if they are ‘unable to walk at all’ and will receive 6 points if ‘they cannot walk more than 200 metres on level ground without stopping or severe discomfort.’ They won’t receive any points at all if none of the descriptors are found to apply.

Limited capability for work is confirmed where the claimant achieves a combined score of 15 points in respect of any of the activities from either the physical or mental functioning categories, or even from a combination of both.

Limited Capability for Work Related Activity

Claimants who generally have less severe conditions, for whom there is a realistic expectation of returning to work at some stage will be assessed to establish their ‘limited capability for work related activity’, using a different set of activities.


Walking or moving on level ground	The claimant is unable to walk with a walking stick, move using crutches or manually propel themselves in a wheel chair more than 30 metres without repeatedly stopping, experiencing breathlessness or severe discomfort.
Rising from sitting and transferring from one seated position to another	The claimant is unable to complete both of the following: Rise to standing from sitting in an upright chair without receiving physical assistance from someone else; and Move between one seated position and another seated position next to one another without receiving physical assistance from someone else.
Picking up and moving or transferring by the use of the upper body and arms	Cannot pick up and move 0.5 litre carton full of liquid with either hand. (excluding standing, sitting, bending or kneeling and all other activities specified in the schedule)
Reaching	Cannot raise either arm as if to put something in the top pocket of a coat or jacket.
Manual Dexterity	Cannot turn a ‘star headed’ sink tap with either hand or pick up a £1 coin or equivalent with either hand.
Continence	Based on varying levels of continence, where the claimant does and does not have an artificial stoma, or where a urinary collecting device is used for the majority of the time.
Maintaining personal hygiene	Cannot clean own torso (excluding back), which may or may not be subject to a severe mood or behavioural disorder, without : Physical assistance from someone else Repeatedly stopping, experiencing breathlessness or severe discomfort Receiving regular prompting given by someone else in the claimant’s presence.
Eating and drinking	Cannot convey food or drink to the mouth without physical assistance from someone else; without repeatedly stopping due to breathlessness or discomfort; without receiving regular prompting from someone else. Or Cannot chew or swallow food or drink at all, or without assistance from someone else; without repeatedly stopping due to breathlessness or discomfort; without receiving regular prompting from someone else.
Learning or comprehension in the completion of tasks	Cannot learn or understand how to successfully complete a simple task such as the preparation of a hot drink Needs to witness a demonstration given more than once on the same occasion to carry out a simple task.
Personal Action	Cannot initiate or sustain personal action (including planning, organisation, problem solving, prioritising or switching tasks), without daily verbal prompting.
Communication	The claimant is unable to speak, write or type to a standard that can be understood by strangers, or is unable to use sign language to Level 3 British Sign Language Misinterprets verbal or non-verbal communication to the extent of causing distress to himself or herself on a daily basis Effectively cannot make himself or herself understood, due to their disassociation from reality owing to a severe disorder of mood or behaviour.

Unlike the earlier tests used to establish ‘limited capability for work’, this assessment is not measured on a pointsscoring basis. Instead, ‘limited capability for work related activity’ is confirmed where the claimant is unable toperform any one of the activities listed in the table above.

Claimants who fail their work focussed health related assessment and are not judged to have ‘limited capability for work’ or ‘limited capability for work related activity’, may apply to be reassessed for the new allowance after a period of three months and in the meantime may also apply for benefits under Job Seeker’s Allowance.

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Work Focused Interviews

To address current Government concerns that “almost nothing is expected of Incapacity Benefit claimants and little support is offered” (Source: Government Green Paper Jan. 2005’ A new deal for Welfare: Empowering people to work’), claimants judged to have limited capability for work related activity, will also be asked to take part in regular ‘work focussed interviews’ through the Government’s Pathways to Work Scheme. These interviews are designed to help overcome barriers to work and support claimants into sustainablelong term employment. Specifically, they will provide an opportunity to:

Assess the claimant’s prospects for remaining in or obtaining work.
Assist or encourage the claimant to remain in or obtain work.
Identify activities that the claimant may undertake that will make remaining in or obtaining work more likely.
Identify training, educational or rehabilitation opportunities for the claimant which may make it more likely that the claimant will remain in work or be able to do so.
Identify current or future work opportunities, including self employment opportunities for the claimant, that are relevant to the claimant’s needs and abilities.

During the interview, the claimant will also be asked to assist in developing an action plan. This will provide a record of the interview discussion and in particular, an outline of the steps they are prepared to take to obtain or remain in work. The plan will then be revisited at future work focussed interviews throughout the period that the claimant is receiving main phase ESA benefits.

It’s worth noting that legislation allows for the use of third party contractors in arranging and conducting interviews, and in helping to put together claimant action plans. In addition, Government Ministers have indicated that these contractors are paid on the results they achieve, in terms of the number of claimants that they help to return to work.

Main Phase Benefits

On completing the assessment phase, successful claimants become eligible to receive main phase benefits under the new allowance. Unlike benefit amounts under State Incapacity Benefit prior to October 2008 which increase after six months and again after one year, benefit amounts under the new allowance will not increase with the length of claim.

All eligible claimants will receive a ‘Basic Allowance’ of £64.30 per week which is equivalent to the maximum age related amount available under Job Seekers’ Allowance.

Those claimants who are assessed to have limited capability for work will receive an additional ‘Support Component’ payment of £30.85 per week.

Only the most severely incapacitated are expected to receive the support component. Combined with the Basic Allowance of £64.30, this adds up to a weekly benefit of £95.15. Plus, recipients of the Support Component may also qualify for a further ‘Enhanced Disability Premium’ of £13.40, adding up to a maximum weekly benefit of £108.55 per week.

Those claimants who are assessed to have limited capability for work related activity will receive an additional ‘Work Related Activity Component’ (WRAC) payment of £25.50 per week. Combined with the Basic Allowance, claimants will receive an overall weekly benefit of £89.80.

The chart below compares benefit levels for both claimant categories under the Allowance.

For the most part, claimants will receive a combination of the Basic Allowance figure and the WRAC payment which add up to £89.80 per week.

However, it’s important to acknowledge that there are also some key differences between ESA and its state incapacity predecessor.

Payment of the WRAC component is conditional on attending the work focused interviews mentioned earlier. Where the claimant continually fails to attend these meetings, payments under this component will be halved for the first four weeks and subsequently withdrawn altogether, leaving the claimant in receipt of just the Basic Allowance figure of £64.30.
Secondly, unlike the old long term State Incapacity Benefits paid after 52 weeks, no additional benefits are payable that are linked to the claimant’s age or which reflect the fact they have a dependent adult.

This change could be costly for some claimants where their circumstances would have previously allowed these additional weekly payments. The maximum age related benefit had previously offered a maximum additional benefit of £15.65 for those 35 and under, while the additional benefit for a dependent adult offered claimants around an extra £53.10 every week.

It should be noted however, that all claimants in receipt of ESA benefits may also continue to be eligible for other benefits such as Disability Living Allowance and Housing and Council Tax Benefit.

Points for advisers:

The new Employment and Support Allowance is detailed in more than 180 pages of regulations. So clearly this guide will at best only provide a brief overview of what the new Allowance has to offer. However, there are one or two key points that advisers should take away with them for future discussions with their clients:

Assessment for the allowance can generally be expected to be much more rigorous both in nature and the consistency with which it is applied than under the previous regime for State Incapacity Benefit. What’s more, main phase benefits are not paid until the claimant has completed their assessment and the full extent of how their illness or condition limits their capability for work has been established.
Potential claimants will only receive the new allowance where they are unable to perform any kind of work. This could mean that people who are still capable of performing some kind of work may be unsuccessful in claiming benefits and have no other alternative than to review their career options. This may well be daunting, particularly at a time when they also have to come to terms with their illness or condition.

An income protection plan on the other hand is assessed independently of entitlement to State benefits, and in most cases is related to the claimant’s ability to perform their own occupation (or, in certain cases, an occupation to which they are reasonably suited based on their experience and training in their particular field of expertise).
Benefit levels under the new allowance remain sufficient to cover only the most basic of living costs. Take a look at the following chart which compares the combined value of the ‘ESA Basic Allowance’ and ‘WRAC’ with the net weekly income of someone receiving the national average annual gross wage of around £25,000.

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Need to know more?

If you’d like to know more about the Employment and Support Allowance log on to www.unum4advisers.co.uk where you’ll find a host of further information about ESA benefits, including a link to the DWP website.

If you’d also like to know more about how your clients might benefit from income protection, call your Unum Sales Consultant on: 0800 783 3282.

Please note that this guide is for use by professional financial advisers only. Its content is based on Unum’s understanding of regulations which took effect from October 2008, and may be subject to change in the future.

Figures quoted in this guide are correct for the 2009/2010 tax and benefits year.

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UP1418 04/2009

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