Group Income Protection (GIP) Overview of Statutory Sickness Benefits.

A key part of an employer's HR strategy will be the extent of any provision they may wish to make for employees unable to work as a result of illness orinjury.

In developing this strategy, an understanding of the framework of sickness and incapacity benefits provided by the government is necessary.

Two main State benefits are available and a brief summary is provided below.

Statutory Sick Pay.

Employers are responsible for paying statutory sick pay (SSP) to employees who are aged 16 and over and under 65 who are absent from work due to sicknessor disability. SSP is due for the first 28 weeks the employee is off work. It is paid at the same time and in the same way as normal earnings. Payments are subject to income tax and national insurance contributions.

The standard rate of sick pay from April 2007 (usually reviewed each year) is £72.55 per week.

Section 151 of the Social Security Contributions and Benefits Act 1992 requires the employer to make the payments, but the total of SSP paid over 13% of the employer's NI liability in any month can be deducted from NI contributions.

Entitlement to SSP does not depend on the sick employee's National Insurance contribution record (unlike Incapacity Benefit).

The SSP scheme does not affect an employee's right to occupational sick pay e.g. GIP. But SSP can be offset against any occupational sick pay payable for the same period. Where the occupational sick pay is greater than the SSP, the employer will only pay the rate of occupational sick pay. If the SSP is greater than the occupational sick pay, the employer will pay the rate of SSP. Both SSP and occupational sick pay are taxable.

Incapacity Benefit.

Incapacity benefit is a social security benefit, in the form of a weekly paid replacement income, payable to individuals who are incapable of workbecause of illness or disability.

To obtain Incapacity Benefit a claimant must be 1 6 or over and under state pension age, (60 for a woman, 65 for a man). They must be unable to work because of sickness or disability, and not entitled to Statutory Sick Pay. They must usually have paid enough National Insurance contributions, although if they became unfit for work before they were 20 (in some cases, 25), they do not have to meet the contribution conditions or have paid National Insurance.

People who have reached State Pension age cannot normally get Incapacity Benefit. State Pension age is currently 60 for a woman and 65 for a man. Thiswill be equalised at 65 for both men and women from 6 April 2020. The change from the current State Pension age of 60 for women to 65 will be phased in over a 10-year period from 2010 to 2020.

From 2008 the Employment and Support Allowance will replace Incapacity Benefits for new claimants.

Please note: this information is provided for information only and is correct at the time of writing (2007). Employers should confirm current rates via the DWP's website - www.dwp.gov.uk

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How much is Incapacity Benefit?

The amount of Incapacity Benefit depends on how long a claimant has been unable to work. Once a claimant receives long-term incapacity benefit (after 52 weeks of being unable to work), it also depends on their age. Claimants may be able to claim an extra amount for an adult dependant, called an adultdependency increase. An adult dependant could be a husband, wife, civil partner, or someone who looks after the claimant's children. This, therefore, includes an unmarried partner, including a same-sex partner, if the partner looks after the claimant's children. Whether an adult dependency increase ispaid, depends on the age of the adult dependent, whether the claimant receives child benefit, how much the adult dependent earns and what other benefits they receive. The rules for benefits can sometimes become complicated!

A claimant may get less than the full rate of Incapacity Benefit if they are getting an occupational or personal pension or payment from an insurance policy for physical or mental illness.

Incapacity Benefit is payable at three rates, depending upon the length of time a claimant has been unable to work. The basic rates below are from April 2007, and they usually go up each April.

Short-term lower rate (for first 28 weeks of being unable to work) - £61.35 a week.
Short-term higher rate (for weeks 29-52 of being unable to work) - £72.55 a week.
Long-term rate (for after 52 weeks of being unable to work) - £81.35 a week

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Evidence of incapacity.

For the first 196 days (28 weeks) of incapacity a claimant will have to prove that they cannot work by obtaining medical certificates from their GP. These will show that they are unable to do their usual job.

After 196 days they will usually have to pass the 'personal capability assessment' to show that they are incapable of work. Most people will have to have a medical examination to decide if they pass the personal capability assessment, which looks at the claimant's ability to perform a range of particularactivities. If the claimant has a certain condition or are severely disabled they may not have a personal capability assessment and will be considered automatically incapable of work.

It is important to note that the benefits provided by the state are modest and much lower than would normally be provided by a standard Group income Protection (GiP) policy.

The average salary for full-time employees in the uk is around £23,500. The rate of long-term incapacity benefit for a 40 year, with an adult dependant and two children is £8,024.

By contrast a typical GiP policy would provide £13,350 during long-term incapacity over and above State incapacity Benefit. This means the employeewould receive around 90% of their salary during long-term incapacity. State incapacity benefit alone would only provide around 34% of their pre-incapacityearnings.

Without GiP it is likely that an employee will find it very difficult to make ends meet at a time when they are most vulnerable.

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Tax.

Incapacity Benefit is taxable except for the short-term benefit paid at the lower rate for the first 28 weeks of incapacity or where the recipient is over State Pension age and receives a higher rate of Incapacity Benefit than the basic short-term rate for the first 28 weeks of incapacity. Additional benefits payable in respect of adult and child dependants and/or age related additions are taxed differently as follows:

Child dependency additions are not taxable
Additions for an adult dependant are taxable if the benefit itself is taxable
Age-related additions to long-term Incapacity Benefit are payable to individuals aged under 45 years old and are taxable

Sometimes taxable SSP is paid by an employer in the first 28 weeks of incapacity. The days for which SSP is payable, count as part of the first 28 weeks for Incapacity Benefit. The claimant will then move on to the short-term higher rate even though they may not have had short-term Incapacity Benefit at the lower rate for the first 28 weeks.

Incapacity Benefit is not subject to deduction of National Insurance contributions.

This information is based on our understanding of current legislation, which may be subject to change.

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Unum Limited.

Unum Limited is authorised and regulated by the Financial Services Authority. Registered in England 983768.

We monitor telephone conversations and e-mail communications from time to time for the purposes of training and in the interests of continually improving the quality of service we provide.

Registered Office:

Milton Court, Dorking,
Surrey, RH4 3LZ
TEL: 01306 887 766
FAX: 01306 881 394
TXT TEL: 01306 887 784

UP1376 05/2007