By Tom Philips at September 19, 2023

Does Equity Release Affect Employment And Support Allowance (ESA)?

Employment and Support Allowance (ESA) is a state benefit that can be claimed if you are unable to work due to an illness or disability (1). It is paid directly to the claimant every fortnight.

ESA used to be comprised of Contributory Employment and Support Allowance and Income-related Employment and Support Allowance, which some people are still receiving.

However, new applicants will only be entitled to the new-style ESA, which is a modification of Contributory ESA. Income-related ESA was replaced by Universal Credit.

The new-style ESA is not means-tested, which means savings and income are not a factor in how much money people are entitled to:

1. Equity Release’s Effects on Work

If you are able to work for short periods of time, you can get a job while claiming ESA. However, there are rules you must follow.

The job cannot be more than 16 hours per week, and you must not be earning more than £167 per week.

An ESA permitted work form must be submitted by anyone who wants to work alongside claiming ESA.

Another option is to volunteer. Your hours spent volunteering will not count against you, so you would still receive ESA even if you volunteered full-time.

However, you must notify Jobcentre Plus if you begin volunteering while you are in the process of applying for ESA, or claiming ESA.

2. Equity Release’s Effects on other benefits

If you are already claiming Statutory Sick Pay or Jobseeker’s Allowance, you will not be eligible for ESA.

However, other benefits can be claimed alongside ESA, including:

Universal Credit (though this will be reduced for people who start claiming ESA)
Personal Independence Payment

Please keep in mind that Universal Credit has replaced many social security benefits, not just Income-related Employment and Support Allowance.

It has also replaced Working Tax Credit, Child Tax Credit, Income Support, Income-based Jobseeker’s Allowance and Housing Benefit. None of these benefits will be impacted by the new-style ESA.

Individuals who are claiming benefits past the State Pension age will not be able to benefit from ESA. For example, Pension Credit claimants are automatically ineligible for ESA as they are above State Pension age.

On the other hand, certain benefits will become accessible to people when they start earning ESA. For example, ESA claimants can make an application for Council Tax Reduction.

3. Equity Release’s Effects on pension

Claiming ESA does not prevent you from receiving a State Pension. This is because you will no longer be eligible for ESA when you reach State Pension age.

Instead, you will get up to £203.85 per week of taxable income (the new full State Pension) if you are eligible (2).

Though periods of unemployment can affect your eligibility, claiming ESA will provide you with Class 1 National Insurance credits to account for this.

Private pensions and occupational pensions do not exempt people from ESA, unless the private pension income amounts to more than £85 per week.

4. Employment And Support Allowance Payments

To find out the amount of ESA you are entitled to, contact Citizens Advice. They will be able to calculate an accurate amount based on your personal circumstances.

When ESA applications are approved, they are divided into two groups, according to whether the claimant will be able to work in the future.

If the answer is yes, the claimant is put into the work-related activity group. Members of this group are entitled to a maximum of £84.80 per week for 365 days. The idea is that this money can support them temporarily while they look for a job.

Individuals who cannot work at all are placed in the support group. They will earn up to £128.85 per week.

The higher amount accounts for the fact that long-term support is necessary, and the claimant is too unwell to take on part-time work to supplement their income.

The full amount of benefit income is not offered until the ESA application has been approved. In the meantime, which is usually around three months, applicants will get the age-based assessment rate.

Under-25s will receive up to £67.20 per week, and over-25s are entitled to a maximum of £84.80 each week.

5. Employment And Support Allowance Eligibility

To be considered for ESA, you must have a disability or health condition that interferes with your ability to work (or to work full-time). You must also be under the State Pension age.

As the new-style ESA is based on contributions, applicants must have enough National Insurance contributions or credits over the past 2-3 years to be eligible.

The current employment status of the applicant is not part of the eligibility criteria. This means people are free to apply whether they are self-employed, employed or unemployed.

However, they must have evidence of previous work (either for themselves or an employer).

6. How to claim Employment And Support Allowance

Most people apply for ESA online. If you cannot do this, call Jobcentre Plus on 0800 055 6688 and press the digit relating to new-style ESA guidance.

Before applying, make sure you’re prepared in terms of knowing your employment history, the amount of savings you have, and anything else that is likely to affect the amount of ESA money you are entitled to.

Evidence is not necessary at this stage. If you pass this initial assessment, you will be contacted and asked to provide evidence to back up your claim.

Some people are rejected from ESA before they get the chance to submit the first form, as they provide an answer that is not compatible with the eligibility criteria.

If this happens to you, we recommend using an online calculator to find out what you are entitled to before dedicating time to applications.

Individuals who pass the eligibility requirements are asked to provide personal details. This includes employment information, GP contact details, sick notes, bank details, the amount of income they earn, and their National Insurance number.

Once the application has been submitted, the Department for Work and Pensions (DWP) will assess the details provided, and contact the applicant concerning the progression of the application.

If the outcome is positive for the claimant, they will be on track to receive the new-style ESA. If they are rejected, they can ask for a mandatory reconsideration, followed by appealing to an independent tribunal if necessary.

Does Equity Release Affect Employment and Support Allowance (ESA)?

Equity release does not affect new-style ESA. The household income and savings of someone applying to either equity release or ESA are irrelevant, which means people can happily benefit from both schemes.

Allow us to demonstrate how this works with two different examples:

Client A: The equity release consumer

Client A is a 59-year-old equity release consumer who released £50,000 from her home four years ago. She took out a drawdown mortgage, which means she received a lump sum of £10,000 and put the rest into a cash reserve. As a result, she has a large amount of savings from equity release.

One of the main motivations for releasing equity for Client A was the fact that she could no longer work full-time due to a chronic health condition. She believed the best way to resolve this was to take money from the value of her property.

When Client A speaks to a financial adviser, she realises she is eligible for ESA in spite of her savings.

As she is unable to work full-time due to limited capacity, and she has not yet reached State Pension age, there is no reason that she cannot claim ESA to add to her current funds.

Client B: The ESA claimant

Client B is 55 years old, and he started claiming ESA five years ago, after struggling to attend work due to a disability. Up until this point, Client B had not considered equity release, as he believed receiving benefit income would make him ineligible.

When Client B turns 55 years old, he contacts Equity Release Warehouse, and discovers he is entitled to release equity even as an ESA claimant.

He is informed that the only criteria for equity release is to own a home worth £70,000 or more, and to be at least 55 years old, and therefore he is now in a position to make an equity release application.

Should I Consider Claiming ESA?

If a disability or health condition is impacting your ability to work, ESA is often no-brainer. There is no need to struggle if you are eligible for government support.

For people who are never going to be able to work, this money ensures they do not have to face poverty as a result of something they cannot control.

Others benefit from ESA as a short-term support as they look for a job. This support is not only financial, but also practical, as they will be assigned a work coach.

That being said, there are risks involved with claiming ESA. As it can impact other benefits, you need to carefully consider the best route to take.

If you currently claim Jobseeker’s Allowance (JSA), keep in mind that this will be taken away if you start to earn ESA. However, it may be necessary to make the transition as ESA support takes into account your limited capability for work.

Should I Consider Releasing Equity?

Everyone above the age of 55 with a home valued at £70,000 or more should at least consider equity release. There is no scheme like equity release; when the risks are managed well, it can change your life.

You will not find another scheme that allows you to borrow such a large amount of money without demanding repayment. Although the money is paid back when you pass away, there is no direct loss to you, as the sale of your property covers this cost.

Equity release loans are also tax-free, which is another huge incentive to take part in the scheme.

When you look at the large amounts of money people can release through this scheme, and remember that it is not taxable income, it becomes clear that equity release is an excellent way to access money in retirement.

Just as your savings cannot prevent you from earning ESA, they cannot get in the way of a successful equity release application.

Private pensions, which can affect ESA, are also not an obstacle to becoming an equity release customer. This means you can use equity release as an additional source of income, even if you are already financially comfortable.

On the other hand, there are several reasons to be wary of equity release. Borrowing money from an equity release provider often means that you cannot leave as much money to your family when you pass away.

It can also negatively affect you in the future if you decide to stop the scheme, as there are often fees for early repayment.

How Would My Finances Change if I Released Equity While Claiming ESA?

As we have confirmed, it is possible to release equity and claim ESA, so there is no need to decide on just one scheme.

However, you may be wondering how different your life could look if you made the most of both of these types of support.

As you already know, the maximum weekly benefit income from ESA is £128.85 for people in the support group category and £84.80 for work-related activity group members.

If you are in the former group, you need to calculate how much this would amount to between now and the month you reach State Pension age.

The calculation is less straightforward for people on the lower ESA weekly income, as it is tricky to predict how long you will be earning ESA for, and how much you could earn in a part-time job of less than 16 hours per week.

However, you may decide that the equity release funds are enough to sustain you through retirement, and therefore the ESA money is simply a top-up until you find a job.

After predicting how much money you could get through ESA, it’s time to consider what you are entitled to with equity release.

There is no standard allowance, as there are many factors involved. Our free equity release calculator provides an estimate based on your property value, age, and whether you own a house or apartment.

We recommend meeting with an equity release adviser to work out a specific calculation, as this will help you to decide whether equity release paired with ESA would be worth it. Get in touch with us for a free appointment.

Does Equity Release Affect Employment and Support Allowance (ESA) – FAQs

Below, we provide answers to common questions around how equity release can affect ESA payments:

1. What happens after submitting my ESA application?

There is a waiting period of ten days between submitting the application and being contacted by DWP.

The next stage is usually to attend an appointment with a Jobcentre Plus work coach and agree to the Claimant Commitment. This could be in person, though it is often a telephone assessment.

You will need to discuss your needs in this appointment, which includes explaining why you are unable to work, and giving medical evidence to back this up.

After this appointment, there may be a Work Capability Assessment. Even if you do not have this assessment, the next stage is to be placed into the work-related activity group or the support group. This is when you will begin to receive your ESA payments.

2. Who can advise me on applying for ESA?

There are many organisations working to help people understand ESA. Please ensure you go to a reputable company for financial advice, such as Citizens Advice or Moneyhelper.

Equity Release Warehouse can advise you on subjects relating to both ESA and equity release.

For example, we cannot tell clients whether they are eligible for ESA, but we can advise them on what their finances would look like if they were claiming ESA when they released equity, as opposed to working full-time or being unemployed with no benefits.

3. Can I apply for ESA if I am receiving Statutory Sick Pay (SSP)?

If you are currently receiving SSP, you are not eligible for ESA payments. However, you can plan ahead by applying for ESA up to three months before your SSP comes to an end.

In your application, you will need to inform DWP that you are currently in receipt of SSP, and you will be asked to provide the SSP end date.

4. Can I apply for ESA if I worked outside of the UK?

It isn’t always possible to get ESA if you have been working outside of the UK. However, in certain cases, you would be eligible if you had evidence of employment in the EU.

5. What happens if I recover from a health condition?

If you are claiming ESA due to a health condition that no longer affects you, you must inform Jobcentre Plus as soon as possible.

Any changes to your health or medical care must be reported, even if you are still not fit to work. For example, you must report when you get a new doctor and when you are admitted to hospital.

6. Can I get the enhanced disability premium with ESA and equity release?

The enhanced disability premium is a benefit income that is added to ESA. It is only available to people in the ESA support group, but it can be offered regardless of whether the individual has released equity or not.

Successful applicants can receive up to £19.55 per week as a single person (or £27.90 if they are in a couple).

Speak to Equity Release Warehouse

We are here to guide you as you figure out the benefits and risks of releasing equity in England, Scotland, Wales or Northern Ireland.

If you are claiming Employment and Support Allowance, or any other non-means-tested benefit, equity release does not have to be difficult for you.

The only added step is seeking specialist advice about how equity release would affect ESA with Citizens Advice or another reliable advice company.

Even if you are claiming means-tested benefits, including Universal Credit or Pension Credit, you can release equity from your home.

However, you would be risking losing some or all of the weekly income from your benefits, which is a risk you will have to weigh up.

Fortunately, you can contact us for free equity release advice with a no-obligation guarantee. Our phone assessments consistently prove to be useful to our clients, whether they end up opting for equity release or another source of income.

Reach out to us for a telephone assessment on 0330 058 1579.

References

[1] Employment and Support Allowance (ESA) https://www.gov.uk/employment-support-allowance

[2] The new State Pension https://www.gov.uk/new-state-pension/what-youll-get