Suffering a personal injury can be traumatic in many ways, having far-reaching consequences beyond the obvious pain of your injury – whether it’s been a road traffic accident, industrial disease or workplace accident. Not only must you suffer the pain and inconvenience of an injury, but sometimes your condition may mean you are unable to work – either signed off on reduced sick pay, or you lose your job as a result of your reduced physical capabilities. That could mean that you may need to rely on state benefits, perhaps for your reduced income or for the disability you’ve gained as a result of your accident.
However, this can be problematic for personal injury compensation: the capital you gain as a lump sum can negatively affect any mean-tested benefits you currently receive in order to supplement (or replace) your income.
So, how can you avoid this and keep your benefits when you receive your settlement? We’re looking at the ways in which you can protect your compensation settlement instead of using it to replace your benefits for basic living costs, including:
- What does means testing mean?
- Which benefits are means tested, and which aren’t?
- A table showing the benefits that are affected by capital such as savings or a lump sum payment
- What’s the problem with benefits and compensation payments?
- How can you avoid having to use your compensation to live off?
- How do you use a personal injury trust to retain your state benefits?
What does means testing mean?
Means testing is where the government looks at your existing income and capital to decide whether you are eligible to receive certain state benefits. Capital can include things like additional property that you don’t live in, cash and savings in bank accounts, bonds and investments, or stocks and shares.
If you receive a lump sum of compensation and put it into your bank account, this will then count as capital against some of your benefits, reducing your entitlement.
Which benefits are means tested, and which aren’t?
As of 2016, these benefits are means tested:
- Working Tax Credit
- Child Tax Credit
- Universal Credit (soon to replace several benefits)
- Income Support
- Income-related Employment and Support Allowance (ESA)
- Income-based JobSeeker’s Allowance
- Pension Credit Guarantee Credit
- Reduced Earnings Allowance (assessed on previous income only)
Certain disability benefits are not means tested – you can get them regardless of your savings. These are:
- Attendance Allowance
- Constant Attendance Allowance
- Blind Person’s Allowance
- Carer’s Allowance or Carer’s Credit
- Disability Living Allowance – for adults or for children (this is being replaced by Personal Independence Payment for people over 16)
- Personal Independence Payment (PIP)
- Disabled Students’ Allowance
- Industrial Injuries Disablement Benefit
- Vaccine Damage Payment
Which means tested benefits can be affected by capital (savings such as a compensation payment for a personal injury)?
Not all means tested benefits are affected by savings – some are judged on income only. However, for large savings amounts, you may be judged to have an income from the interest that those funds generate.
Working tax credit and child tax credit won’t be affected by your savings (such as a lump sum of personal injury compensation settlement).
Means tested benefit that could be affected by capital
In what situation would you receive these benefits?
What is the capital limit before your benefit is affected?
What is the capital limit to lose entitlement?
|Income Support||£6,000 of savings.||£16,000 of savings.|
|Income-related Employment and Support Allowance (ESA)||£6,000 of savings.|
Also if you earn more than £115.50 a week from less than 16 hours’ work per week for up to 52 weeks, or as long as you’re in the designated ‘support group’. Earning up to £20 a week is also allowed.
|£16,000 of savings.|
|Income-based JobSeeker’s Allowance||If you can meet all of these criteria:|
You also must be one of the following:
|£16,000 of savings.|
(If you don’t qualify for income-related JSA, you may still get contribution-based JSA, irrelevant of your savings, based on your NI contributions.)
|Pension Credit Guarantee Credit||If you’ve reached state pension age and you have a low income, Guarantee Credit can be used to top up your income to £155.60 a week for a single person, or £237.55 for a couple. If you have a pension, you may also get Savings Credit as an extra payment (unless you reached state pension age on or after 6 April 2016).|
|Universal Credit||Universal Credit is eventually going to replace these benefits, from 2017 onwards:||£6,000 of savings.||£16,000 of savings.|
|Housing Benefit||If you’re on a low income and you pay rent, either to the council or privately, you may be able to get Housing Benefit to contribute towards your rent.||£6,000 of savings.|
Or, if you’ve reached the qualifying age for Pension Credit and you have capital of over £10,000.
|£16,000 of savings, unless you are getting the guarantee credit part of Pension Credit.|
|Disability Facilities Grant||If you have a disability and your home needs modification for you to live there.||Household savings up to £6,000. However a child under 18 can get this benefit regardless of their parents’ income or savings.|
|Incapacity Benefit||This is being replaced by Employment and Support Allowance (ESA), so you will soon be re-assessed under ESA rules (unless you’re nearing state pension age).||The same as ESA, which you’ll be moved onto soon – £6,000.||The same as ESA, which you’ll be moved onto soon – £16,000.|
What’s the problem with benefits and compensation payments?
If you receive a compensation payment for your personal injury, putting it straight into your savings account will mean that it will be counted as capital – so reducing the amount of benefits you’re entitled to. That means you may have to use your compensation to live off – for costs such as mortgage, rent, heating, water and food – until it’s nearly all used up, instead of using the settlement as it was intended.
In this way, all a compensation payment is doing is taking the place of state support, rather than as a compensatory sum paid to you for someone else’s negligence. Once your savings drop below the capital limit, you may become entitled to state benefits again – but then, all of your compensation money has been spent!
In addition, if the benefits you’re claiming are directly because of a personal injury you’ve received (for example, ESA) then the insurance company paying you the compensation may have to pay these benefits back to the government. This may come out of the compensation you receive.
How can you avoid having to use your compensation to replace your benefits?
Personal injury compensation is actually ignored by the government for the first 52 weeks after you receive the award (whether it’s an interim or final settlement), but the rules are quite strict on how you spend it within that period (you must not ‘deplete or deprive the capital’ and then claim benefits). If you deliberately squander or give away your money after this 52 week period, with the purpose of retaining your state benefits, you’ll be treated as if you still have it – meaning you’ll have both spent your settlement and lost your entitlement to benefits!
However, in order to maintain your compensation award beyond this period without affecting your entitlement to certain benefits, the solution is very simple: put your compensation into a personal injury compensation trust.
A personal injury trust can also ring-fence your compensation against long-term care fees, if you need to move to a residential/care home in the future.
How do you use a personal injury trust to retain your means tested benefits?
To set up a personal injury trust, you can use various types of trusts – whether they are bare or discretionary – as long as:
- the trust has at least two trustees (you can be a trustee, but if you are, you must have at least two other trustees too)
- you are the beneficiary of the trust (or one of the beneficiaries)
- the trust fund (and any income it generates) must be held in a separate bank account
- the money in the trust must be derived wholly from your personal injury settlement – and no additional funds.
Trust law is complex, and the type of trust you need will depend on your personal circumstances – such as whether you meet the criteria to be considered a ‘disabled person’ by law, or whether the trust is for a minor or person with reduced mental capacity.
Your trustees may make small, irregular payments to you from the trust – these payments should be below the savings limit for your eligibility to benefits (usually £6,000 to get the maximum amount of benefits).
It’s best not to transfer any money from the trust account into your own account – this could mean that your personal injury settlement is no longer protected, and may be subject to the means test for your benefits. Instead, it’s best to have the trustees make the payments, by using the trust account to pay directly for purchases.
To make a claim, get in contact with us today.