Consumer confusion about new Welfare Reform Act

A new report by protection specialist LV= has revealed that 17.5 million UK adults in full time employment are unaware of the changes that the Welfare Reform Act has brought about, just one week after new legislation replaced Incapacity Benefit with Employment and Support Allowance (ESA).

One fifth (20%) of employees surveyed said they didn't know how much they would be entitled to receive under the legislation. In addition, almost one in ten (8%) employees said they didn't expect to receive any financial assistance from their employer. This equates to 5.8m people who could come under serious financial pressure if they were unable to work for a sustained period, either because they don't know how much they would receive from their employer or because they expect to receive nothing.

Just one quarter (25%) of employees said their employer would continue to pay their full monthly salary for the whole period that they were unable to work due to long-term illness or an accident.

Chris McFarlane, Head of Protection at LV= comments: "It is clear that there is a huge lack of understanding among employees around the new changes announced by the Government. The Welfare Reform Act has completely redesigned what financial support could be available to people if they were unable to work, and no-one should assume that the State would support them and cover their regular financial commitments."

The LV= research also shows that one quarter (26%) of adults in full time employment, equivalent to 5.4m people across the UK, do not have any savings to fall back on if they were unable to work. And one third (30%) of adults admit that they couldn't survive for more than two months on their current savings if they were out of full time work.

Under the new ESA, which replaced Incapacity Benefit, people who are able to undertake some form of work-related activity will receive a maximum weekly payment of £84.50. More than half (56%) of those questioned in the LV= study didn't know how much they could receive each week under the ESA. Of those who did state how much they would receive, almost one fifth (17%) of employees thought they would receive more than £80 per week from the Government.

Worryingly, according to the report one third (34%) of full time employees said they are not prepared to take out insurance, for example an income protection policy, to protect their income in the event of being unable to work through illness or an accident.

Chris McFarlane continues: "In the current economic climate protecting your income in the event of being unable to work for a sustained period of time is more important than ever. This report has highlighted that many people are unaware of what they would receive from their employer or from the Government if they were unable to work.

"Actually cover can be very affordable and even the equivalent of £6 per week can go a long way towards providing a reasonable level of protection, giving peace of mind. It is also important that people regularly review their financial situation, and an independent financial adviser can help to ensure they have appropriate cover in place."

A female non-smoker aged 35 next birthday, opting for level Income Protection cover with a benefit of £800 per month, over a 25-year term would pay £24.86 per month. This is based on a low-risk non-manual occupation, guaranteed premiums, and a waiting period of three months.

For more information about the range of protection solutions from LV=, including obtaining an online financial check-up, visit lv.com/advice