Finance

How Much Savings Can You Have To Qualify For ESA?

In a rush? Here’s the TL;DR…

  • ESA income-based payout amounts are not affected if you or your partner have less than £6,000 in savings.
  • If you have more than £16,000 in savings, you are not entitled to ESA benefits.
  • If you have between £6,000-£16,000 in savings you receive a monthly income that is reduced by £4.35 for each £250 saved up.
  • Savings do not affect “new style” ESA payments or payments for contribution-based ESA, but pension amounts can.

COVID-19 has hit the world’s economy hard. According to the Guardian, 7 out of 10 UK firms have furloughed staff in the past 2 months and over 140,000 UK companies have applied for the government’s Coronavirus Job Retention Scheme and the national unemployment rates are expected to hit 10% during the second quarter of 2020. Fortunately, the UK’s furlough relief program is expected to stave off the worst economic effects of furloughing, but there is still expected to be a jump in unemployment.

As unemployment rises, more UK-ers are expected to file for ESA. For many, it will be their first time filing for unemployment benefits. As such, many people will have a lot of questions about what they will be entitled to. That is why we put together this quick guide on ESA benefits so you can understand what, exactly, you are entitled to.

What Is ESA?

Employment and Support Allowance (ESA) is a program headed by the UK government that is designed to give money to people who cannot work because of sickness or disability but do not have statutory sick pay from an employer. ESA claimants cannot get Statutory Sick pay or Jobseeker’s Allowance at the same time. ESA payments are meant to help cover living costs if you are unable to work or support you while looking for new work if you are able.

There are two main types of ESA: income-based and contribution-based. Income-based ESA is designed for those who need continual support and likely will not be able to return to work. Contribution-based ESA is for workers who are unemployed but have made enough national insurance payments.

Am I Eligible for ESA?

The UK government recently changed regulation surrounding ESA and allowed for “new style” ESA for those whose work has been affected by coronavirus. If you:

  • Can’t work because you are following self-isolation guidance
  • Are earning less because you can’t work
  • Are earning less because you are self-employed
  • Have become unemployed

Then you may be eligible for ESA payments under the new guidelines. You can also be eligible if your employers have taken you off schedule voluntarily. Even if you are not a UK citizen, you can be eligible for ESA benefits.

The UK government recently changed regulation surrounding ESA and allowed for “new style” ESA for those whose work has been affected by coronavirus.

According to gov.uk, you can apply for New style ESA if you cannot get statutory sick pay and at least one of the following is true:

  • You or your child is might have or is recovering from coronavirus
  • You or your child is self-isolating due to having come in contact with someone with coronavirus
  • You have been advised to stay home for at least 12 weeks by the NHS because you are in a high-risk demographic

If you are self-employed and can’t get statutory sick pay, then you can apply for new style ESA if you have paid enough National Insurance contributions for the past 2 tax years.

How Much Do ESA Benefits Pay?

The exact value of ESA benefits depends on the stage of your application, age, and capacity to re-enter the workforce.

Assessment Period

For the first 13 weeks while your ESA claim is being assessed, you will receive:

  • Up to £58.90/week if you are under 25
  • Up to £74.35/week if you are over 25

The assessment rate is set for 13 weeks initially but lasts until you get a final decision on your claim. You will be backdated if you are owed any money after the initial 13 weeks.

Once your claim has been assessed and you are found to be eligible, you will be placed in either the work-related or support groups. If you will be able to get back to work in the future you will be placed in the work-related group. Otherwise, you will be placed in the support group.

Regular ESA payments depend on the group you are placed in. You can get:

  • Up to £113.55/week in the support group (£156/week if you live with a partner)
  • Up to £74.35/week in the work-related group (£116.80/week if you live with a partner)

Those in the support group may also be eligible for the enhanced disability premium and the severe disability premium.

How Do Savings Affect ESA Payments?

It depends on the kind of ESA placement you receive. If you are placed in the work-related group, your savings do not affect your payments. Also, if you apply under the “new style” ESA then savings do not affect your benefits. However, if those in the workgroup have a private pension worth more than £85 a week then it could affect ESA payments.

If you are placed in the support group, then your savings will affect ESA benefit payments. Those on the ESA-support group have a maximum savings limit of £16,000. That means if you apply for income-based ESA and have more than £16,000 in savings, you will not qualify for payments.

Conversely, if you have less than £6,000 saved (£10,000 if you are over the legal pension age), then ESA payments will not be affected at all. You will receive the maximum amount each pay period.

For those with between £6,000-£16,000 in savings, ESA payments are reduced by an amount proportional to how much you have saved. The first £6,000 is ignored and any amount decreases your total benefit payments by £4.35 per every £250 saved.

So for instance, say you have £9,000 saved up. The first £6,000 is ignored in calculations and deductions are taken out based on the remaining amounts, e.g.:

  • £3,000/250 = 12
  • 12 x £4.35 = £52.2

So £52.2 will be taken off your monthly ESA payment.

Here is a general method to figure out how much will be taken off your ESA payments due to savings:

  1. Subtract £6,000 from your savings.
  2. Divide the remaining amount by 250
  3. Multiply that number by £4.35

The remaining number is how much your monthly payments will be reduced.

How Do Pensions Affect ESA Payments?

If you are in either the work-related or support groups and have a private pension, then pensions will affect ESA payment amounts. There is no upper limit on pension amounts, but any amount over £10,000 will affect your payments. Every £500 in your pension over £10,000 will be counted as an income of £1 a week.

How Often Will I Get Paid?

Those who qualify will begin receiving ESA payments every 2 weeks beginning after the assessment period is finished. ESA payments are made directly into your bank account, building society, or credit union account.

What, Exactly, Counts As Savings?

ESA payment amounts for those in the support group are based on your savings. But what, exactly, counts as savings to the DWP?

Savings for the DWP include any amount of money that can be accessed relatively easily or financial products can be sold. Examples of savings include:

  • Cash and money in a bank account or credit union account
  • Stocks and held shares
  • Property that is not your principal residence
  • Premium Bonds and National Savings and Investments accounts

In some cases, properties you own and do not live in may not be counted as savings. Other sources of money that do not count as savings include:

  • Personal possessions (electronics, jewelry, etc.)
  • Life insurance that has not been cashed in
  • Money from other insurance claims (ignored for 6 months)
  • Pre-paid funeral plans

Keep in mind that you are not allowed to intentionally reduce your income or savings to receive more benefits. The DWP will examine your financial behavior form before applying to make sure you are not engaging in the intentional deprivation of assets. Kinds of behavior that could be considered intentional deprivation of assets might be:

  • Giving away money
  • Transferring property
  • Buying expensive non-essentials (cars, jewelry, entertainment, etc.)

If the DWP determines that you have engaged in the intentional deprivation of assets, then your account will be assessed as if you still had those assets (called notional capital).

In Summary

Here is a short summary of the major points

  • ESA benefits have two plans: income-based and contribution-based
  • Savings do not affect amounts received in contribution-based plans
  • Savings affect amounts received for those on income-based plans
    • Under £6,000: No change
    • Over £16,000: Not eligible for payments
    • £6,000-£16,000: subtract £4.35 for every £250 over £6,000 in savings
  • Savings include any amount of money you can easily access.

Unemployment can be stressful. Thankfully, the UK government has comprehensive services to help those who can return to work get back on their feet after losing a job or support those who are unable to provide for themselves.

Tom
About author

Fully qualified CISI Investment adviser for 5 year. Managed UK private client portfolios.
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