3 July 2020
Chris Reynolds, Chair of IFoA’s Health and Care Board, discusses how the current interaction between Universal Credit and Income Protection Payments can be improved to build the resilience of the private rented sector to income shocks.
Covid-19 has highlighted the limited ability of many households to cope with an interruption in regular income. A recent report from the Resolution Foundation found that renters are more likely to experience material deprivation during Covid than homeowners.[1] As we turn our thoughts to a post-Covid future, there is a clear and urgent case to develop policies which will help renters be more resilient to income shocks. This is an increasing segment of the market as the majority of households aged under 35 are now renters.
Under the current Universal Credit (UC) rules, many renters receive only partial help with their rents and may face a ‘rent gap’ of hundreds of pounds each month. Yet those who receive income from insurance policies, such as Income Protection (IP) and Family Income Benefit (FIB) payments, are unable to use this money to cover the gap. Instead it simply reduces the help they get from UC. This means that it is effectively impossible to insure against facing a rent gap while on UC. Due to this interaction, some renters, particularly those on low incomes, may find that IP does not enable them to ensure their housing costs are met following an unexpected illness or accident. This problematic interaction only exists for renters. For owner-occupiers, any insurance payment they receive to cover their mortgage is disregarded in UC.
The IFoA’s and Building Resilient Household Group’s (BRHG) new joint report, which contains research commissioned by the BRHG and performed by Hymans Robertson, considers the financial resilience of individuals in private rented accommodation, and how this could be improved in the event of unexpected drops in income due to ill health. It considers how financial resilience can be improved by extending the insurance payment ‘disregard’ in the UC system, currently applied to IP and FIB payments paid to cover housing costs in the form of a mortgage payment, to all housing costs.
The analysis looks at the costs to the State of making this change, as well as the potential savings e.g. greater incentive for renters to take out insurance. The analysis considers several scenarios, one of which estimates the State savings over 5 years to be £151.3m. However, if no policy change is made, it is estimated the costs to the state could increase to £43.8m.
Making these changes will mean all consumers can have the clarity and peace of mind that products like IP and FIB affords, making it a more attractive offering. In addition to promoting uptake of IP and FIB, the clarity achieved will have the likely flow on effects of enabling advisers to advise with more certainty, and drive providers to design products aimed at helping this market segment. Beyond the societal benefit, the analysis identifies the potential savings the state would enjoy as a result of the proposed reforms. We encourage the Government to use this analysis as a starting point for more detailed consideration of this important issue.