Simplification of State bereavement benefits

Kay Ingram, director of public policy at LEBC Group, looks at the winners and losers from the latest changes to State bereavement benefits.

Simplification of State bereavement benefits

From 6 April, the State support available to bereaved spouses and civil partners changed. While those already bereaved before this date remain unaffected, a new suite of benefits, Bereavement Support Payment, will now be paid where the death occurred after this date. Critics of the changes have highlighted that some widowed parents will get less but younger childless claimants stand to benefit.

As with other financial matters, those living in cohabitation will receive no benefit and with their numbers having risen to 6.6 million* this is a significant segment of the population. Divorcees are also ineligible, even where ongoing maintenance was being paid by the ex-spouse.

Civil partners and spouses who are bereaved may claim a lump sum and 18 months of monthly payments. These are tax free and non-means tested and do not count towards the universal credit cap. Eligibility requirements have been simplified with no lower age limit and no withdrawal of the payments on remarriage or re-partnering.

The benefits are at a higher and standard level. The higher rate is for those who are eligible to claim child benefit for their children, including high earners who may have waived this entitlement. It is also paid to pregnant widows.   The amounts are as shown below.

Benefit Level Lump sum Monthly payment for 18 months
Higher £3,500 £350
Standard £2,500 £100

 

Those who stand to gain the most are younger widows/ widowers who have no children. Before now only over 45s received a bereavement pension.

Parents of young children will lose the most, as the current benefit is payable until child benefit ceases, which could be up to 20 years if the child is in full time education.

The new benefit will only be paid for 18 months. The payments are now higher amounts and tax free which will assist some bereaved parents. Other means tested benefits may also be available after this time.

For the majority of bereaved partners these benefits will not fully replace the earned income or value of caring of a deceased spouse or partner. It is therefore essential that couples, especially those with children, consider how they would manage financially if their income was suddenly stopped due to death of either of them.

The steps to assessing this are:

  1. Calculate the outstanding debts, mortgage, credit cards, car leasing etc
  2. Add a lump sum to include funeral and legal costs, say £10,000-£20,000
  3. Consider how much of a nest egg is needed for one off expenditure such as house repairs, car replacement.
  4. Add 1, 2 and 3 above. Deduct any lump sum payments expected from life assurance, pension schemes and the State, existing savings. If there is a shortfall this is the lump sum life assurance needed.
  5. Calculate net spending needs, excluding debt repayments, on a weekly or monthly basis. Deduct the net salary of the survivor, if applicable.

This is the income benefit required.

Life assurance can be bought on the basis of both a lump sum payment and a regular income. Claims are usually paid tax free, regardless of the income and tax status of the recipient. Life assurance in the UK is relatively inexpensive and income benefit plans especially so, as they are based on regular monthly payments for the balance of the period of time selected when you buy it.

For example, a healthy non-smoking 35-year-old could buy £10,000 per annum of regular income, inflation linked, payable for the balance of a 20-year insured period for as little as £6.98 per month and for a 45-year-old this rises to £12.02 per month.

A lump sum of £50,000 payable on death, within 20 years, would cost the 35 year old £4.95 per month and the 45 year old £7.34 per month *1.  Smokers can expect to pay more and actual costs will depend upon individual health, lifestyle and occupation at the time of application.

 

*ONS  Families Survey 2016

*1 Premium rates provided by LEBC Group, based on a whole market survey.

Please remember, no news or research item is a recommendation or advice to buy. Every Investor is not responsible for accuracy and may not share the author’s views. If you are unsure of the suitability of any investment for your circumstances please contact an adviser. All investments can fall as well as rise in value so you could get back less than you invest. 

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