The new Employment and Support Allowance

24th October 2008

It's an important question. The credit crunch isn't the only thing that could have an impact on your earnings. The new Employment and Support Allowance (ESA) replaces State Incapacity Benefit from 27th October 2008. It is the state benefit you may be able to claim if you were unable to work because of illness or injury.

But, guess what - it's peanuts. Like all state benefits, ESA is designed only to provide a very basic level of replacement income if you are unable to work. Pay too much, and a state benefit like this encourages people to take longer to return to work.

If you are self-employed then you can apply to be assessed for ESA after the first four days of any illness.

For employees, you will be eligible to receive Statutory Sick Pay after four days of illness. Your employer has to provide you with a minimum of £75.40 per week for 28 weeks. Some employers are more generous than this and might offer a longer period. As an employee you are able to apply for ESA after 28 weeks.

If you apply for ESA you have to take part in an assessment which will take place during the first 13 weeks of a claim. During this period, you will receive a benefit of £60.50 per week (or £47.95 if you are under 25 years old). This assessment is based on your ability to work rather than the extent of your illness or injury. If you fail the assessment, the benefits stop and you will have to be considered for Income Support instead.

In addition to qualifying for ESA benefit payments from the state, this assessment will also place you in one of two categories which will determine the level of benefits you receive.

If you are placed in category one, there is a reasonable expectation that you will be able to return to work again. The basic allowance in this category is £60.50 per week and there is also a further allowance, known as a Work Related Activity Component (WRAC), of £24 a week. Payment of the WRAC is conditional on you attending regular back-to-work interviews which aim to measure your progress against a back-to-work programme.

If you are placed in category two then you are severely incapacitated and not expected to return to work again in the future. The basic allowance for this category is also £60.50 per week and there is also an additional Support Component of £29 per week. You might also qualify for other state benefits, such as Disability Living Allowance.

Regardless of the category, benefits continue to be paid for the full duration that you are unable to work. This could last to state retirement age, if necessary.

With the ESA being introduced, you need to think about how much income you would need to meet your committed expenditure if you were unable to work.

Take a look at your monthly budget and remove the discretionary expenditure to come up with a realistic figure. It is the shortfall between the ESA payments and this figure that you need to plan for - either with sufficient savings that will last for a sufficient period of time, or through insurance.

The introduction of ESA is an important reminder to review your financial plans to ensure that they include provision for incapacity. When was the last time you spoke to an Independent Financial Adviser about Income Replacement Insurance?

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