Would you be able to cope under new bereavement payment changes?

The government is making major changes to bereavement payments, which could see some parents widowed on or after April 6th 2017 forced to cope on considerably less money.

As part of the shake-up, the Bereavement Payment, Widowed Parent’s Allowance and the Bereavement Allowance will be dropped in favour of the new Bereavement Support Payment.

What this means in real terms

From April, people who are widowed but have no children will be eligible to receive a tax-free lump sum of £2,500, while those with children will receive £3,500. Monthly tax-free payments will also be made for a period of 18 months – £100 if you have no children, £350 if you do.

These payments won’t be linked to inflation and will be paid no matter your age or whether or not you find a new partner. However, for some, this will leave them considerably out of pocket when compared to the current bereavement payment arrangements.

Currently, when a spouse or civil partner dies, Brits can receive a £2,000 tax-free lump sum. This is called the Bereavement Payment. You may also be eligible for the Widowed Parent’s Allowance if you’re under state pension age and have at least one dependent child, which amounts to £112.55 taxable income. The Widowed Parent’s Allowance will be paid until the youngest child of a widowed parent no longer qualifies for the benefit, up to a maximum of 20 years.  However, or hit state pension age within this time frame, you will no longer be eligible to receive the payment.

For those without children, there is the Bereavement Allowance. You need to be between 45 and state pension age to qualify but if you do you will receive £112.55 of taxable income for a period of 52 weeks after the death of your spouse. This payment rises in line with inflation and is linked to the deceased partner’s National Insurance record.

Will you be better or worse off financially?

Once the Bereavement Support Payment takes over from the current system in April, parents with young children who lose their partner are likely to be financially worse off under the new scheme. According to the Childhood Bereavement Network, around 91% of widowed parents will be supported financially for a shorter period of time[1]. In some cases, it’s believed this may result in a £12,000 reduction in financial support.

Cohabiting, unmarried couples also continue to be excluded from the bereavement payment system. According to the Department for Work and Pensions, this is because it would be incredibly complicated to include them and would require proof of cohabitation, “which could be both difficult and intrusive for the bereaved person to establish”.

However, childless widows will stand to gain more money under the new arrangements and the government will save £40 million per year from 2020 as a result of the changes.

Yet it is important to remember that because the Bereavement Support Payment will not reflect inflation changes, widows are likely to see the value of their payments decline over time.

Coping financially in the face of bereavement

Losing a loved one can be a deeply upsetting and stressful time, with no amount of money able to compensate for the loss of a spouse, partner or parent. However, the situation can be harder when you’re worrying about how to make ends meet. To help make sure you’re financially prepared should the worse happen, it’s worth considering the following tips:

  1. Ensure both you and your partner have life insurance

Life insurance is designed to ensure that if you die, your family has money to fall back on. You simply take out a policy by paying monthly or annual premiums, which are based on the amount you agree with your insurer that will be paid to your next of kin, loved ones or ‘estate’ when you die. Find more about life insurance, how it works and how it can help you in our blog.

  1. Make sure you have a will in place

A will is an important document that not only covers the division of your assets, but also allows you to say who you want to look after any children or pets in the event of your death. Wills may be particularly important for those with children and dependants, people who want to leave money to charity and people who are unmarried, as the law won’t allow unmarried couples who haven’t registered a civil partnership to inherit.

  1. Never borrow more than you can comfortably afford to pay off

We all need to borrow money from time to time and doing so can actually be good for us, as it allows us to build a good credit history if we can demonstrate that we can make repayments. However, if you get into a cycle of borrowing more than you can manage to repay within a reasonable amount of time, if something bad happens to you, your family may struggle to repay your debt. Think sensibly about what you can actually afford to borrow without stretching yourself or falling into the trap of long-term debt. Use your credit report to help you manage your accounts and understand how much you have to repay.

  1. Consider a rainy day savings pot

Saving money overtime and creating a bank of cash you can draw on to deal with the unexpected could help your family if something happens to you. Not only could it cover funnel costs, it could also help top up household income over the short-term.

Hopefully these tips will allow you to create a financial safety net for your loved ones for when you die, which will give both you and them peace of mind.

 

[1] http://www.thisismoney.co.uk/money/bills/article-4179762/Bereavement-payments-set-cut-31k.html and https://www.theguardian.com/money/2017/jan/29/young-bereaved-cuts-to-financial-support-12000