"New" versus "old" benefit complications
A look at the issues around the old "legacy benefits" system v the new Universal Credit one. Which one do I come under? Is there a choice? Which might be best for me? If everyone has to switch, does it really matter how and when? Is this really two totally different benefits systems? And how does that all fit into the likely benefits for people affected by cancer?
Welcome to a two part run though of what lies behind talk of "old" and "new" benefits systems, in relation to the very gradual switch from "legacy benefits" over to Universal Credit (UC). Originally a much quicker timetable was planned, with everything over and done with by October 2017. However, three years has become twelve or so, meaning the issues arising from two systems co-existing remain with us until possibly as late as September 2026.
The six "legacy benefits" still remain very important for some 4.2 million people still receiving them, along with concerns over any differences made by the "How?" and "When?" of that eventual switch over to Universal Credit (UC). And while this is a changeover mainly for "working age" people, people of pension age can be drawn in too, if they are in - or become part of - a "mixed age" couple.
Matters are simpler if you are coming to means tested benefits new and so have none of the switch over choices and complications, but you may still find the early parts of this blog of interest.
In this first part, I explore:
- exactly which benefits are changing over and when is this happening
- how these changes fit into the overall benefits "system" and the likely benefits mix for people affected by cancer
- why the "Hows?" and "Whens?" of any switchover from legacy benefits to UC matter
- What protections are there or that will appear in future if you would lose out in the switch to UC
In Part Two - see "New" v. "Old" benefits (2): Further Issues - I go on to look at:
- the impacts on three other benefits that are not directly involved in the switch-over to UC, but are affected by it
- how non-means tested Contributory ESA - not a legacy benefit - has some odd changes, even if you are not looking at means tested top ups at all and how ESA fits in with old versus new benefits if you are
- how Pension Credit - not part of this change - is affected by a gentler change for all and a potentially more ferocious one for "mixed age couples
- a bit more detail about the "severe disability premium" and the current protection it offers
Is there a benefits "system" anyway?
Universal Credit (UC) is not quite as universal as it sounds. UC is not taking over from all previous benefits, but just a small group of six - albeit rather important - "legacy benefits", with some knock on effects on a further three. There isn't a single benefits system as such: the last complete overhaul was in 1948. Since then, the original benefits have changed a bit and many new ones bolted on to fill gaps or respond to social change. Depending on how you count them there are some 25 to 40 different benefits.
Less one co-ordinated benefits system, then, and more a bit of a "benefits maze". One suggestion to guide you through this tangled web is to think of your entitlement as being built up in three "steps"; these are entirely unofficial, so benefits staff may not recognise them. They are:
- Step 1 : Earnings replacement benefits: the main National Insurance system from 1948, based on the idea that you pay into a compulsory National Insurance fund. That then covers you that covers you for breaks in your working life and for retirement. As with any other insurance payout, you don't expect your savings and income to be be an issue when settling your claim. The aim was that the main system should be non-means tested. Likely ones for those affected by cancer include: Carer's Allowance, State Retirement Pension and Contributory ESA (more on that below) .
- Step 2: Means tested benefits - there was a small back up "safety net" paid either instead of Step 1 benefits (e.g. if no benefit fits or not enough NI contributions) or increasingly as a top up to Step 1. Likely examples include: Income-related ESA, Income Support, Working and Child Tax Credits, Housing Benefit, Universal Credit and Pension Credit
- Step 3 Extra non-means tested benefits: these are extra benefits, paid regardless of income and savings and whether you are in work or not. They are mainly paid for the extra costs of either children or living with a long term illness or disability. Likely examples include: Child Benefit, Personal Independence Payment (PIP) and Attendance Allowance (AA)
Examples of the steps when affected by cancer
You can follow through these step - see other blogs in the links below for more details - to work out the benefits that you may be entitled to and reduce the big risk of missing out on your entitlements. The idea is to ask yourself: Can I get a benefit at Step 1 and if a choice which is best? Can I get a top up at Step 2 as things stand? Might I get a top up at Step 3? And if so, will this increase entitlements back at Step 2? Some common combinations after a cancer diagnosis include:
- for an older person: Retirement Pension (step 1) + Pension Credit, Housing Benefit, Council Tax Support, Help with health costs (step 2) + Attendance Allowance (step 3) .
- for someone under "pension age" in the old system: Contributory ESA (step 1) + Income-related ESA , Housing Benefit, Council Tax Support and help with health costs (step 2) + Personal Independence Payment (step 3).
- for a someone under "pension age" in the "new" system": Contributory ESA (step 1) + Universal Credit , Council Tax Support and help with health costs (step 2) + Personal Independence Payment (step 3)
So, from theses steps and examples, you can see that Universal Credit is making a big noise within Step 2, but it is not even taking over that step entirely. All Step 1 and Step 3 benefits - and some Step 2 ones - will remain, largely undisturbed by this UC happening.
Which benefits are merging into UC?
The "new" Universal Credit, then, is mainly a change to "working age" means tested benefits in Step 2. But see below for some impacts on people who have come of pension age. The six "legacy benefits" that UC will eventually take over from are:
- Income Support (IS)- the once general means tested income top up is now mainly for carers, lone parents and to top up Statutory Sick Pay
- Income-related Employment and Support Allowance (Ir-ESA) - for those with "limited capability" for work, although you can do some "permitted work" while claiming
- Income-based Jobseeker's Allowance (Ib-JSA) - for those in good health - or with only limited health issues - who are unemployed and expected to be actively seeking work
- Working Tax Credit (WTC) - for those working over a certain number of hours - especially for families and workers with health issues (e.g. in recovery from cancer)
- Child Tax Credit (CTC) - for the costs of children, whether you are working or not
- Housing Benefit (HB) - to help with any rent that you have to pay, again whether you are in work or not
However, the switch to UC also has some important knock on effects on three other benefits:
- Pension Credit : will remain a separate benefit in step 2, but will be changed by UC . See more details below.
- Contributory versions of ESA and JSA , which both remain separate benefits within step 1. However "New Style versions of each lose their previous link with their Income-related equivalents in step 2, so they do get involved in the "old" versus "new" issues.
UC was estimated to end up with 6.5 million claims, but at January 2020, there were only 2.3 million of this number on UC, with the remaining 4.2 million still claiming from the six "legacy benefits".
However, numbers on UC have nearly doubled in the first weeks of the coronavirus lockdown. These new claims were mainly people outside of the previous estimates. But it will include many who - whether they realised it or not - were making a switch from previous legacy benefits over to the UC system e.g. workers who had been getting tax credits.
So where are we now in the UC switchover:
By December 2018, UC was open to almost all categories of new claims across the UK. That means:
- all new claims are under the new Universal Credit (UC) and the ability to start a new legacy benefit claim is "switched off", except for: a) people entitled to an extra amount called a severe disability premium within their legacy benefits or in PC, and b) those claiming UC for general living costs, still claim Housing Benefit for rent (if they live in supported or temporary accommodation)
- those already getting a "legacy benefit" stay as they are for now, but are free to claim UC instead at any time, if they so wish.
However, there will come a time when you will have to switch from legacy benefits to UC. This will happen either by a:
- natural migration. because of a change in circumstances that would require a new claim under legacy benefits rules. As you can't usually do that, you have to claim UC instead. This results in all your legacy benefits - not just the one where a new claim is needed - moving over to UC; or
- a managed migration - these were due to start from late 2020, but this may be delayed. This is when UC will write to you, regardless of any changes, to say you must now make a claim for UC instead.
So for new claimants things are simpler: you start off with UC - for better or worse than what might have been - and stay with it. But for the 4.2 million people still receiving "legacy benefits", there is the added complication of whether it makes a difference how and when you switch
The complications for "switchers"
Why has it got complicated?
If you will have to switch anyway, does it matter how and when you do so ? Yes, it does.
In any changeover there will be be "winners" and "losers" between the old and new ways of doing the sums. That will depend so much on your individual circumstances, both as they are right now and as you look ahead to what you might expect things to be like in more normal times. This blog doesn't assume then that UC is always worse for you and needs avoiding; for many it can be better and just need embracing smoothly asap. You may want to check which system works best for with an adviser.
The added complications in the switch-over to UC, are that:
- the balance has shifted: there will now be more "losers" than "winners" under the new UC sums. If you are a "winner", then you just might want advice about how to switch early and smoothly, but if you are a "loser" you might want to hang on to legacy benefits
- the lack of protection if you lose: the usual promise in big benefit changes is that "no-one loses out at the point of change" . However, under UC, that protection only applies if you switch to UC through a managed migration and doesn't apply if you just opt to claim UC instead or if you have to undergo a natural migration, which is the only sort available now.
So this means that most people lose in the sums, and right now any switch comes without any protection from any losses. That is an extra worry for switchers but makes big savings to the Treasury. The Office for Budget Responsibility notes that if the switch over takes the extra two years they are allowing for over current DWP targets, then the Treasury saves some £700 million a year in protections no longer paid out.
The problem for claimants doesn't go away when managed migrations start happening, later in 2020 or early 2021. It will still be possible to be have to switch by an unprotected natural migration right through to the end of the switchover process, should your name not have come up yet for a managed migration.
How will Transitional Protection work?
This "no-one loses out at the pont of change" protection is officially termed Transitional Protection. It works by:
- comparing the amount you get in your last month on legacy benefits with the amount that you get in your first month under the normal rates of UC.
- adding extra transitional element to your UC, to make up for any losses from the normal UC rates
The protection will be limited, but is still very much worth having:
- over time, that transitional element will reduce (e.g. as the normal UC rates go up each year or if you become entitled to extra amounts within your UC sums) .
- your UC maximum amount, then, is effectively frozen until the transitional element has worn away or you lose it for other reasons.
In the end, you still end up on the lower UC levels, but will be let down gently, rather than having a sudden drop.
These complications would not have arisen if only transitional protection had been offered to everyone switching over to UC, as it was in previous big changeovers. Not doing so, means that the "Hows?" and "Whens?" of switching become more complicated.
Get advice before claiming UC
Many people do better under UC and prefer it's ways. But do get independent advice before you claim UC, as there is no going back if you regret it. The questions to look at might be:
- Will I win or lose from a switch to UC switch? Do I need to go for UC and get an increase or hold back to avoid unprotected losses?
- How can I make any switchover go as smoothly as possible?
- Do I really have to switch over now? Have they got it wrong or might there be an alternative way to arrange any changes?
Summary and next time
- Old versus new benefits refers to a change in just part of the benefits "system" - that Step 2 of means tested benefits.
- UC is slowly taking over from six legacy benefits but with some important knock on effects on three others.
- UC is not necessarily to be avoided. Many will win under UC sums, but more will lose. There are also big changes in how the benefit works which some like and others struggle with.
- If you are new to means tested benefits it' simpler - you will claim UC, for better or for worse.
- For those receiving the legacy benefits, there is the added complication of when and how you make that switch to UC.
- This is only because UC is not honouring the usual principle of "no-one losing out at the point of change" - or at least not for now
- There will be transitional protection but it only applies to managed migration that haven't started yet ; and other unprotected switchovers will carry on when they do.
- So if If you lose out in a switch to UC , you may want to try to stay with legacy benefits, until you are offered a protected "managed migration"
But do check all this out with a Maggie's Benefit's Advisor, whether it's to:
- make a smooth new claim UC or to make for an easy early switch UC if you are a winner in the switch over sums; or
- avoid UC if you can - should you lose out in those sums - until it is ready to do the decent thing and offer you transitional protection.
Next time, in Part 2 - "New" v. "Old" benefits (2): Further Issues, I will look at some further indirect complications caused by UC, for a couple of benefits very relevant to people affected by cancer. Contributory ESA and Pension Credit carry on after Universal Credit has fully rolled out, but are affected by it. Sometimes the changes are gentle :for al who are claiming: the way you claim ESA will change for all whether or not they claim means tested top ups and PC will adapt to the end of a couple of the legacy benefits also claimed by older people. Other times these will be bigger : such as the huge potential losses for mixed age couples may find. I will also delve a little deeper into that "severe disability" extra amounts and the extra protection it can offer.
Please join the related conversation New versus Old benefit systems by posting any general queries and comments and by sharing any experiences good and bad over switching to UC
Useful links and further reading:
Links related to this blog
- Join the related conversation New versus Old benefit systems
- Read Part 2 at "New" v. "Old" benefits (2): Further Issues
Links to other relevant Benefits Blogs:
- stepping back to an overview of Benefits after a cancer diagnosis
- more detail on legacy benefits starting with What is means testing and why?
- more on UC starting with What is Universal Credit?
- more detail on Pension Credit starting with Extra help in older age from AA and PC
- more detail on ESA starting with Sickness Benefits: an Overview