Can you afford to leave protection to chance?

In the sixth instalment of our Summer Financial Focus, here at SG Financial Services we look at how the state benefit system has come under more intense scrutiny during the pandemic and highlighted some serious gaps.

There is nothing quite like a crisis to show where societies are vulnerable, as has been well demonstrated globally over the past few months. In the UK, the immediate concern was the resilience of the NHS, which initially appeared at risk of being overwhelmed by demand for intensive care beds. Then, like many other countries, the UK was also forced to look at providing extra financial support for people who suddenly found themselves out of work, whether through illness, quarantine requirements or temporary business closure.

The most significant element of the Government’s response was the Coronavirus Job Retention Scheme (CJRS), which by late May was covering nearly 8.4 million employees on furlough – handing them up to £2,500 a month in replacement ‘pay’. Without the CJRS, many of those employees would have looked to means-tested Universal Credit, under which the standard allowance for a couple aged 25 or over is just £594 a month, before any additions (e.g. for children). Even that lowly figure includes a temporary increase for 2020/21 of about £87 a month.

For employees who were suffering from Covid-19 symptoms, the four-day waiting period before statutory sick pay (SSP) began payment was scrapped, which sounds generous until you realise that SSP is worth only £95.85 a week.

The government also introduced a range of other measures to support anyone with reduced earnings, such as changing the law to prevent evictions for three months and, through the Financial Conduct Authority, pushing banks and other lenders to grant three-month payment holidays for mortgages that, provided they are pre-approved, do not affect the individual’s credit file for that period.

Getting back to normal

The damage that could have been done to millions of families by the fallout from Covid-19 has been mitigated by the Government’s multifaceted response. However, the Chancellor is already acting to limit the cost of the Covid-19 measures on the government’s finances. In a year or so from now, the social security safety net will probably have reverted to its lowly pre Covid-19 levels.

The crisis has highlighted the importance of having your own financial protection arrangements to cover possible income loss from illness or disability. The lesson of this experience is that the ‘normal’ social security safety net is inadequate, but full protection would probably be too costly for the Government to provide: protection needs to be personal.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it (coronavirus concessions aside). Think carefully before securing other debts against your home.

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This piece is for general information only and is not intended to be advice to any specific person. You are recommended to seek competent professional advice before taking or refraining from taking any action on the basis of the contents of this publication. The piece represents our understanding of law and HMRC practice.

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