Welfare reform provides the perfect opportunity to review your client’s protection needs, says Scottish Widows’ protection specialist Johnny Timpson
Welfare reform hasn’t featured too highly on intermediaries’ agenda for discussion with clients. But the sheer volume of recent changes mean that now is the ideal time.
Substantial changes to benefits such as child and working tax credits, income-based job seeker’s allowance, income support and housing benefits for those renting and with mortgage, all of which are being replaced by ‘capped’ universal credit, mean that families need to do all they can to protect themselves financially.
There are also major alterations to support for mortgage interest (SMI), the safety net which has underpinned mortgaged homes across the UK since 1948. Worryingly, this is the only safety net in place for many families if they were unable to pay their mortgage. People now have to wait 39 weeks before receiving this benefit instead of the previous 13, which could be too late for many if they have no other protection in place.
And from April 2018 the government plans to make SMI a loan, with a charge being taken on the property. This means that homeowners have to pay back the amount of mortgage interest that the state paid for them either when they return to work or when they sell their home. The change will impact both SMI claims in progress and new claims, making this issue relevant to all mortgage clients.
And if that wasn’t enough, we’ve also seen a new bereavement support payment system come into play this year, making it more important than ever to review financial protection needs. The new system has been described as new and improved, but for many, this is not the case. In fact, it’s estimated that 91% of widowed parents will be supported for a shorter period of time than they would under the present system, which can pay out until the youngest child leaves school, according to research from the Childhood Bereavement Network.
While the new benefit extends financial support to people aged under 45 without dependent children who would previously have been ineligible to claim, and the system itself will be less complicated, older claimants and bereaved parents with dependents will receive less overall as a result of the changes.
This benefit change also has a disproportionate impact on working-age women as they’re statistically more likely to claim it. In fact, 70% of claimants in 2014 were female. And with many parents not having financial protection in place, it means that many families would face a significant financial struggle in the event of an unexpected loss of income due to serious illness or death.
Another downside of this 21st century reform’ is the fact that, sadly, bereavement benefits are only for those who lose a spouse or civil partner, not cohabitees. This is despite the fact that 21% of couples with children are not married, according to figures from the Office for National Statistics for 2016.
And to round things off we have the new benefit cap, which has reduced the total amount an individual household can receive in benefits to £23,000 a year in London and £20,000 in the rest of the UK. It’s designed to ensure that no family on benefits can claim more than the net income of the average working family. But anti-poverty campaigners have said that it could damage the life chances of hundreds of thousands of children, and limit the amount of money which families who are already struggling can spend on food, fuel and clothing. Around 61% of those affected are female lone parents.
The working age welfare benefits covered by the cap are – child benefit, child tax credit, housing benefit, incapacity benefit, income support, job seeker’s allowance, employment and support allowance (except support group), maternity allowance, severe disablement allowance & bereavement benefits. As job seeker’s allowance and employment and support allowance are capped by default, support for mortgage interest is covered as well.
That’s quite a list, especially when you consider the number of households with no alternative financial backup plan. State welfare is the only safety net in place for many families. At the same time, fewer employers are offering sickness benefits and almost one in six workers are self-employed, raising the question of how they’ll cope with their commitments when sickness strikes.
As an industry we need to find better ways to show the critical role that appropriate financial protection advice, solutions and support services plays in safeguarding the financial welfare of our families. This is an ideal opportunity to discuss all options with your clients.