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Income protection State benefits

How IP affects benefits

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IP can impact upon your ability to claim benefits

IP can impact upon your ability to claim some state benefits that are means tested.

Income protection is treated as income when you're assessed for state benefits. It shouldn't affect any statutory sick pay you receive if you are an employee (paid to you for the first 28 weeks of sickness), nor should it affect benefits that you are entitled to because of the National Insurance contributions you make, such as incapacity benefit or Employment Support Allowance.

However, if you receive more than £85 a week from either pensions or an income protection policy and qualify for other means-tested state benefits, such as income support your benefit will be reduced by 50p for every £1 of income protection you receive above £85.

If you are claiming means-tested state benefits and you have an income protection policy, check with your Jobseeker's Plus office as to how you will be affected.

Statutory Sick Pay (SSP)

If you are employed, aged 16 to 65 and off work sick for at least 4 or more days in a row (including weekends and bank holidays) you'll usually receive SSP. The amount paid during 2008-2009 is £75.40 a week.

To qualify, you must earn, before tax and National Insurance, an average of £90 a week (during 2008-2009). This is called the Lower Earnings Limit for National Insurance Contributions. Your earnings are averaged over an 8 week period before your sickness began although this period may vary slightly depending on whether you are paid weekly or monthly. If you have just started your job then the calculation may be different. Your employer will be able to tell you.

You don't get SSP for the first three days of illness. SSP is paid for a maximum of 28 weeks by your employer, with tax and National Insurance Contributions (NIC) deducted. Self-employed people are not entitled to SSP.

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You might be able to access incapacity benefit depending on your circumstances

Incapacity Benefit (IB)

Currently (and up to October 2008) if you are off work for more than 28 weeks you then go onto Incapacity Benefit. You'll receive Incapacity Benefit if you're not eligible for SSP (if you're self-employed, for example, or if you earn under the Lower Earnings Limit). However it's not paid if you were over state pension age when you fell ill.

To qualify, you must have paid NIC and been unable to work because of sickness or disability for at least four days, or 28 weeks if you are eligible for SSP. The amount you get varies according to how long you are off work.

For the first 28 weeks of your claim you'll receive short-term (lower) Incapacity Benefit which is £63.75 a week (during 2008 -2009). This payment is tax-free.

If you are off work for between 28 and 52 weeks, you are entitled to the short-term higher rate of £75.40 a week (during 2008 - 2009) which is taxable. For anything over 52 weeks, you'll get the long-term basic rate of £84.50 a week, which is also taxable.

These figures apply for the current financial year (2008/09). They increase annually with inflation and are means-tested, so the amount you get is affected by any other income such as a pension or some protection policies. Your benefit is reduced by 50p for each £1 your income exceeds £85 a week.

For more information on state benefits, go the Department of Work and Pensions website.

New rules from October 2008

From 27 October 2008 the position dramatically changes for new benefit claimants. This is because the current Incapacity Benefit (IB) will be replaced by a new benefit called Employment and Support Allowance (ESA).

How the new benefit works for employed people

Statutory sick pay will stay as now and will cover the first 28 weeks of sickness.

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Changes to the IB system will affect employed and self-employed workers

If you are still unable to return to work after 28 weeks, there will be a 13 week assessment period to find out if you are eligible for ESA and, if so, what type. During this 13 week assessment period you'll receive an amount broadly in line with Jobseeker's Allowance - around £60 a week for people 25 and over.

If you are assessed as being capable of doing some form of work, you'll be entitled to claim ESA of (currently) £84.50 a week until you can get back to work. However,you'll be required to attend work-focused interviews during the time you are receiving benefit.

If you are assessed as being unable to do any form of work you'll receive ESA of (currently) at least £89.50 a week indefinitely.

All people claiming ESA will continue to be eligible for other benefits such as Disability Living Allowance, Housing Benefit and Council Tax Benefit.

How the new benefit works for the self-employed

The position is the same for self-employed people except that, if you are self-employed, you will go straight into the 13 week assessment period (as there is no SSP for self-employed people).

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