Benefit changes

Various changes to the benefit system come into force this month, once again highlighting the danger of over reliance on the State as the safety net to provide for you and your family should you be unable to do so yourself.

The first change to be rolled out from April 1 is a reduction in housing benefit for every spare room in a property. It is estimated that a typical reduction for this will be £14 a week (£728 a year). This is expected to affect 660,000 current claimants, with childless couples and older people affected most.

From April 8 a new benefit, Personal Independence Payment (PIP), will be introduced to replace the Disability Living Allowance (DLA) for working age people.  In the past 9 years the number of people claiming DLA has risen from just under 2.5 million to 3.2 million.  The change to PIP is expected to reduce government spending by £2.2bn by 2015-16, with 20% of current DLA claimants expected to be ineligible for the new benefit.

In addition, from April 8 most working age benefits and tax credits will rise by only 1% each year for the next 3 years rather than inflation (currently 2.2%). This will impact 4.1 million households in 2013-14.

Finally, from April 15 the overall housing benefit cap will be introduced. This will restrict total household benefit to working age people (age 16-64) to the average earnings of a UK working household, estimated to be £350 per week for a single adult or £500 per week for a couple or lone parent.  The cap will mean that people of working age will only receive up to this maximum amount, even if their full entitlement is higher. This change is expected to affect approximately 50,000 households, losing an average £93 per week (£4,836 a year).

It is clear from all these changes that relying on state provision in the event of incapacity could leave you in a difficult position financially. It therefore makes sense to think about taking matters into your own hands to protect yourself and your family.

There are a number of insurance options that could relieve hardship in difficult circumstances, in many cases at little cost.  For example, an income protection policy will pay out a monthly income to replace a proportion of your salary in the event that you are unable to work as a result of an accident or sickness.

It begins to pay out after a set amount of time has passed (decided by you at the start of the policy) and will continue to pay until you are either well enough to return to work, you reach retirement age or the end of the policy term.  It’s definitely worth setting aside a small amount each month to provide some peace of mind bearing in mind the limitations of the state benefit system.

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