We’ll look at contribution based and income based benefits together first, and then look at non mean-tested benefits. Finally, at the bottom, I’ll mention ‘earnings replacement benefits’, in case you’ve come across this phrase and wonder how it fits in with everything else. If you want to go straight to non means-tested benefits click here and if you want to go straight to earnings replacement benefits click here.
Contribution based benefits and income based benefits compared
The idea behind contribution based benefits is that you pay contributions
into a fund over time, and then get money back when you need it. It sounds
a bit like insurance, and in fact the system is called the National
Insurance Scheme. If you’ve paid enough into the fund and fit the other
rules for the benefit you are claiming (for example, are too ill to work),
you are entitled to the benefit. It doesn’t matter how poor or rich you
are, in the same way that if you are entitled to a home insurance payment
they don’t take account of your income: either you meet the rules or you
don’t. (Just to make things a bit more complicated (and a bit more generous) you are sometimes ‘credited’ with contributions even if you not paying any at the time yourself.)
Getting means-tested benefits, on the other hand, doesn’t depend on whether you’ve paid enough into a fund in the past. All that matters is that you haven’t got enough money to live on (this is called satisfying a means-test) and you fit the other rules for the benefits you are claiming (for example, are too ill to work).
You can see from this that logically someone might be able to get both types of benefit, if they paid in enough contributions and don’t have anything else to live on. On the other hand, another person may not have made enough contributions and too much other money to live on, so wouldn’t be able to get either of them.
 Although
the name ‘income based’ doesn’t mention savings and other capital,
they do matter, because they are sometimes treated as generating
income (even if they don’t). Let’s see how this works out in
practice: we’ll look an example where the actual benefits
available have changed over the last few years. |
 Until
November 2008 there were two benefits you could claim if you were
too ill to work:
The rules about how sick you needed to be to get either of these benefits were exactly the same. However you could only get Incapacity Benefit if you had paid (and been credited) with enough national insurance contributions, but could get Income Support whatever your national insurance history, as long as your income was low enough. The way it worked in practice was that people normally claimed Incapacity Benefit and Income Support together: a claimant might end up with Incapacity Benefit or Income Support. Sometimes a person might be entitled to Incapacity Benefit but still not have enough to live on, in which case they would get a ‘top-up’ of Income Support as well. In 2008 everything changed for new claimants: Incapacity Benefit and Income Support because of incapacity for work were both replaced by Employment and Support Allowance. But there are two types of Employment and Support Allowance:
And, just to keep us all on our toes, over the next few years things will be changing again: contribution based Employment and Support Allowance is staying, but income based Employment and Support Allowance is gradually being phased out and replaced by Universal Credit, but that’s a whole other story… |
But what about non means-tested benefits?
Obviously contribution based benefits are non means-tested: it doesn’t
matter what your income is: no means test is applied. However there are
also some benefits that are not means tested and not based on national
insurance contributions. Here are some common examples:
- Disability Living Allowance
- Attendance Allowance
- Personal Independence Payment
- Carer’s Allowance
You could get any of these benefits, in principle, even if you were a multi-millionaire who had never made any national insurance contributions.
Child Benefit used to be a non means-tested benefit, and it is still a non-means tested benefit unless your income is more than £50,000 a year.
There are some non means-tested benefit which also don’t require any national insurance contributions, but do need some other kind of contribution. A common example is Maternity Allowance, for which you have to have history of working.
Earnings replacement benefits
If you’ve not heard this phrase before, don’t worry about it. But in case
you have I do need to mention it. An earnings replacement benefit is one that, well, replaces earnings you haven’t got. So Jobseeker's Allowance is an earnings replacement benefit because its designed to keep you going while you’re not working but looking for work. Employment and Support Allowance is an earnings replacement benefit because it provides an income if you’re not able to work because of illness and disability. And Pension Credit is an earnings replacement benefit because it provides you with an income if you’re not able to work because you’ve retired.
An earnings replacement benefit can be contribution based, or income based, or neither (e.g. Carer’s Allowance).
A benefit that’s not an earnings replacement benefit is one that isn’t designed to replace your wages, but instead is there to meet a particular need. So Disability Living Allowance is not an earnings replacement benefit - you can get it whether you are working or not - and Child Benefit is not an earnings replacement benefit as its job is to assist with the living expenses of looking after children.