Helm News: The Welfare Reform Act 2012

In 2008 Employment and Support Allowance (ESA) replaced incapacity benefits for people making a new claim due to illness or incapacity.

From October 2010, those people who are still receiving the old state incapacity benefits are being reassessed and moved to ESA or other benefits more appropriate to their circumstances. This exercise is expected to continue until 2014.

In addition to ESA, claimants will undergo a Work Capability Assessment.

Changes to ESA with effect from 2012

On 1 May 2012 the Welfare Reform Act introduced two changes to contribution-based ESA.

  • A limitation on the period for which people in the Work Related Activity Group (WRAG) can receive contribution-based ESA to 365 days. This results in those in the Work-Related Activity Group having their situation monitored, with annual assessments.
  • The removal of the special contribution condition and the prevention of any new claims for ESA on grounds of youth.

How will this affect Group Income Protection (GIP)

For employers with a have a flat rate benefit or an insured percentage of salary, there will be no impact to the benefits in place.

Where there is a flat rate benefit or an insured percentage with a deduction for state benefits (equivalent to ESA & Work Related Activity Component (WRAC)) or subject to a maximum less state deductions there will be no change to the way a scheme is administrated or treated in the event of a claim. However claimants benefits will continue to be adjusted in line with deductions throughout the life of the claim (as per the policies terms & conditions), even though the claimant may not be eligible to receive state benefits at all or may only receive them for a defined period at a rate the GIP benefit is calculated on.

Employers must therefore consider the insured benefit basis of their GIP schemes and what is stated in member’s contracts of employment. We would be delighted to discuss design options and communications needs in the light of these changes.

Sources: http://www.gov.uk & the Group Income Protection Insurers: Aviva, Canada Life & Unum.

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The information in this article does not constitute advice and should be used for informational purposes only. 


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