A. A note on national insurance credits
and voluntary contributions
B. Benefit entitlement tests and main characteristics
SUMMARY
1. The information provided in this Memorandum
sets out the implications for social security benefits of a period
of unpaid parental leave. It explains that the current benefit
rules will allow lone parents and sick and disabled people taking
parental leave to be eligible for Income Support; members of couples
on parental leave who sign up to Jobseeker agreements may
be eligible for Jobseeker's Allowance; and people taking parental
leave may also be entitled to Housing Benefit/Council Tax Benefit
and Working Families Tax Credit/Disablement Person's Tax Credit.
Additional costs have been estimated as around £10 million
a year and were published in the explanatory notes and Regulatory
Impact Assessment for the Employment Relations Bill.
2. There are no special rules in either
Jobseeker's Allowance (JSA) or Income Support (IS) which give
preferential treatment to people who are taking statutory parental
leave. Normal rules will apply. Unless the person taking parental
leave falls within one of the prescribed categories in Schedule
1B of the Income Support (General) Regulations, they will have
to claim JSA and satisfy the labour market conditions (availability/actively
seeking work etc) to receive benefit.
3. Lone parents and sick and disabled people
do fall within Schedule 1B and are therefore able to claim IS
rather than JSA (although they can elect to claim JSA if they
so wish). People taking parental leave will not be treated as
being in remunerative work and so will not automatically be excluded
from IS or JSA.
INTRODUCTION
4. This memorandum has been prepared for
the Social Security Select Committee for their inquiry into the
social security implications of parental leave. It provides the
Committee with the information requested in their letter of 10
May 1999.
5. The Government will be implementing the
EU Parental Leave Directive by December 1999. The Directive allows
both men and women who have been with their employer for at least
a year up to three months parental leave when they have a baby
or adopt a child, and protection from dismissal for exercising
this right. In addition, it gives an employee the right to time
off work for urgent family reasons. Member states have considerable
flexibility about how to implement the Directive. The Department
of Trade and Industry (DTI) have the lead responsibility and,
in the Fairness at Work White Paper, consulted widely about the
best way to introduce the Directive in the UK. As far as possible
employers and employees will be encouraged to make whatever arrangements
best suit their own circumstances. The Employment Relations Bill
contains primary powers to make detailed regulations which will
be published during the summer.
6. The provision of social security during
the parental leave period is a matter exclusively for the Member
State and national law. The Member State is obliged merely to
consider the maintenance of entitlement to social security benefits.
There is no obligation to provide such benefits. In considering
whether to maintain entitlement, the Member State is required
to take into account the importance of continuity of entitlement
to social security cover. However, the budgetary situation may
also be taken into account. The financial cost of maintaining
entitlement to benefits may justify a Member State's decision
not to do so. The applicable extracts from the framework agreement
are:
General considerations—paragraph 11
"Whereas Member States should also, where
appropriate under national conditions and taking into account
the budgetary situation, consider the maintenance of entitlements
to relevant social security benefits as they stand during the
minimum period of parental leave."
Clause 2.6
"Rights acquired or in the process of being
acquired by the worker on the date that parental leave starts
shall be maintained as they stand until the end of parental leave.
At the end of parental leave, these rights, including any changes
arising from national law, collective agreements or practice,
shall apply."
Clause 2.8
"All matters relating to social security
in relation to this agreement are for consideration and determination
by Member States according to national law, taking into account
the importance of continuity of the entitlements to social security
cover under the different schemes, in particular health care."
IMPACT ON
SOCIAL SECURITY
BENEFITS
7. According to the Labour Force Survey
(Spring 1997) there are around 3.8 million parents who have been
with their employer for at least one year and who have children
under eight. The PSI survey of family friendly working arrangements
in Britain 1996 ("Family-Friendly Working Arrangements in
Britain 1996" by John Forth, Steve Lissenburgh, Claire Callender
and Neil Milward, DfEE Research series Report No 16) estimated
that 25 per cent of those workers are already entitled to some
form of parental leave, mostly made up of extended maternity leave
and paternity leave at the time of the birth. This means that
2.8 million employees will be newly entitled to parental leave.
8. Assessing the impact a period of unpaid
leave might have on benefits is difficult because of assumptions
which have to be made about take up, behaviour and consequently
who might need/want to claim benefit during such a period. At
one end of the scale there could be no impact at all if people
choose, or can only afford, to take very short periods of leave
at a time. DTI economists have produced a set of assumptions on
likely take up and these have formed the basis of the costings
of additional programme expenditure for DSS benefits (Income Support,
contribution based Jobseeker's Allowance, Housing Benefit and
Council Tax Benefit) which is estimated to be around £10
million a year (an estimated additional caseload of between 3,000
and 4,000). These additional costs for JSA(C), IS, HB and CTB
assume that:
(i) for couples where both partners work,
and at least one works full time, 10 per cent of men, and 50 per
cent of women will take up parental leave, and 25 per cent will
already have entitlement through workplace agreements. Only one
of the couple will take up the parental leave, and they will take
the full three months;
(ii) only a few men who have a partner not
in work will take up parental leave;
(iii) for women with no working partner,
around 75 per cent are lone parents (Family Resources Survey estimate).
In these cases take-up is half that for women in (i) above (assumption
not made for HB/CTB costings).
9. Where people can only afford or choose
to take very short periods of leave at a time there may be no
impact on benefits at all. The costings assume that the use of
parental leave is spread evenly across successive years. Should
those entitled take up the leave in the first year of implementation
the cost would be higher.
Income Support (IS)
10. The IS rules as they stand will enable
a person on parental leave to get IS if they fall into one of
the categories of persons entitled to IS (sick, disabled, lone
parent), satisfy the income and capital rules and neither they
nor their partner is in remunerative work. People taking a period
of statutory parental leave would not generally be treated as
being in remunerative work. There will be an increase in caseload,
programme and administrative expenditure in respect of people
who are entitled to IS at the outset of their parental leave and
of those who will become entitled to IS when their awards of Family
Credit/Disability Working Allowance or Working Families Tax Credit/Disabled
Persons Tax Credit expire during their parental leave.
Jobseeker's Allowance (JSA)
11. A person in remunerative work is automatically
excluded from JSA but the exclusion does not apply if a person
has good cause for being absent from work. People who take advantage
of the parental leave provisions would have a good reason to be
absent from work and therefore would not be precluded from claiming
JSA. They will, however, still have to comply with the labour
market conditions of being available for and actively seeking
work. These conditions are measured on an individual case by case
basis so everybody will have the opportunity to prove that they
can meet these conditions. When considering whether someone can
fulfil the labour market conditions, the decision maker will have
to take account of the intention behind the Directive which is
"designed to facilitate the reconciliation of parental and
professional responsibilities" and is "to enable [the
worker] to take care of [a] child." At first glance this
would not seem to be on all fours with someone being available
for and actively seeking work. However, current labour market
conditions alone may not impose a blanket bar to people on parental
leave receiving JSA. Consideration of questions such as whether
the person is still actually employed or whether they have left
employment voluntarily or are neglecting to avail themselves of
a reasonable opportunity of employment would be taken into account
for each individual claim.
Housing Benefit and Council Tax Benefit (HB/CTB)
12. Housing Benefit and Council Tax Benefit
(HB/CTB) can be claimed by anyone on the grounds of low income,
as long as they have a liability to pay rent or Council Tax. There
are no requirements such as being in receipt of any benefit or
being available for work. During parental leave, therefore, a
person could make a new claim on the grounds of low income or
apply for a review of their award because of the reduction in
income. Parental leave, in the context of HB/CTB, is just one
of many changes in a person's life which might prompt a claim
to HB/CTB. A temporary cessation of earnings because of sickness
or unpaid leave for other reasons would have the same effect.
State Pension
13. State pension will be affected by unpaid
parental leave only if the year in which such leave is taken fails
to become a qualifying year. This is only likely to happen where
someone takes their full three months parental leave in one year
and earns less than £85 a week for the rest of the year.
14. On this basis, people earning around
£100 a week or more are unlikely to be affected even if they
took a three month period of parental leave in one tax year. Low
earners may already be covered by credits if they are in receipt
of Family Credit/Working Families Tax Credit, or, if in receipt
of Child Benefit, Home Responsibilities Protection (HRP) will
trigger. HRP would not apply to those not getting Child Benefit
and these people would have to make up the year by paying voluntary
national insurance contributions to protect their record. Information
about HRP and voluntary contributions is in annex A. People able
to plan periods of parental leave well in advance could, before
the start of the relevant tax year, arrange to have the child
benefit switched to themselves in order to benefit from HRP should
they need it.
15. The State Earnings Related Pension (SERPS)
will be affected by periods of unpaid leave. Earnings related
additional pension is based on earnings between the lower earnings
limit (LEL) and upper earnings limit (UEL) for national insurance
purposes (from April 1999 annually these total £3,432 and
£26,000 respectively). Employees whose annual earnings remain
above the UEL after they have taken parental leave will be unaffected.
Those with earnings between the LEL and the UEL will have less
reckonable earnings. However, in practice, the loss of three months
earnings over a working life will not have a significant effect
on the amount of pension received on retirement.
16. The Pensions Green Paper, A new contract
for welfare: Partnership in Pensions, (Cm 4179) includes proposals
for a new State Second Pension which will replace the SERPS. It
will cut the number of pensioners who will need to rely on the
Minimum Income Guarantee. In stage 1, the value of the second
pension will be doubled for those earning less than £9,000
a year. There will be more help for those earning between £9,000
and £18,500 a year through higher National Insurance Rebates.
In stage 2, when the new stakeholder pension schemes have established
themselves, the State Second Pension will become flat-rate. The
aim is for all middle and high earners to have private, funded
pensions.
17. Carers, some disabled people and those
who receive Child Benefit for a child aged five or under will
receive flat-rate credits to the new State Second Pension. Those
whose earnings, as a result of parental leave, fall to between
the LEL and £9000 will benefit from the low earners' boost.
Those whose earnings fall below the LEL will benefit from credits
for caring for a young child if they are entitled to Child Benefit
for the whole of the tax year in question.
Statutory Sick Pay (SSP)
18. An employee who falls sick during a
period of parental leave would be expected to claim SSP from his
employer as the contract of employment will run throughout the
parental leave spell. SSP would be payable subject to the usual
qualifying conditions, one of which is that a person must earn
on average at least as much as the Lower Earnings Limit in the
eight weeks immediately before sickness began. It is possible
that SSP may not be payable by the employer if a spell of unpaid
parental leave fell in the eight week assessment period and reduced
average earnings below the lower earnings limit. Very short spells
of unpaid leave are unlikely to make any difference except to
those whose earnings hover around the lower earnings limit. For
example, a person earning £70 a week would get SSP because
on average over the eight week period the earnings are above the
lower earnings limit. One weeks unpaid parental leave however
would mean that person's total earnings over eight weeks would
be £490 instead of £560. Dividing £490 by eight
gives an average of £61.25 a week which is below the lower
earnings limit so that person will not qualify for SSP. People
who do not qualify for SSP in this way could apply for Incapacity
Benefit.
Incapacity Benefit (IB)
19. A period of parental leave would have
a minimal impact on IB. IB is payable if a person is incapable
of work and a period of parental leave makes no difference to
this fundamental principle. IB would therefore be available if
a person falls sick whilst on parental leave, and was not eligible
for SSP from their employer. There is a slight danger that a period
of unpaid parental leave would cause a person to fail the qualifying
conditions for IB in the future. However, for a year to fail to
be a qualifying year for benefit purposes as a result of a period
of parental leave, someone would have to take their whole three
months entitlement in one tax year and be earning less than about
£85 a week for the rest of the year.
Statutory Maternity Pay (SMP) and Maternity Allowance
(MA)
20. SMP is payable to women if they have
been employed continuously by their employer for at least 26 weeks
into the 15th week before the week the baby is due and, for the
last eight weeks of that period, have earned on average at least
£66 a week (the LEL). Parental leave will not affect the
employment test but a period of unpaid parental leave may affect
the amount of pay the woman receives in the eight week "average
earnings period"—roughly around the fourth to sixth
month of her pregnancy. This calculation is important because
it determines if she earns enough to qualify for SMP and how much
earnings related SMP she gets for the first six weeks of her maternity
pay period.
21. MA is a national insurance benefit payable
to those employees who cannot get SMP during their maternity leave.
At the moment, it depends on the payment of 26 national insurance
contributions in the 66 week period ending the week before the
baby is due. It is possible that a period of unpaid parental leave
could result in a pregnant woman failing to satisfy the contribution
conditions for MA, although as with SMP, the timing of parental
leave is a matter of individual choice. A woman can arrange to
take leave when it will not interfere with her entitlement to
maternity benefits.
22. Measures in the Welfare Reform and Pensions
Bill will extend Maternity Allowance to the lower paid. Women
earning below £66 a week (the lower earnings limit) but at
least £30 will get Maternity Allowance of 90 per cent of
earnings. Women earning at least £66 will get £59.55
(standard rate). For employed women actual earnings will replace
contributions paid as a condition for receiving MA. Earnings from
all sources will count in assessing earnings. Self-employed women
will receive the standard rate of MA if they have paid at least
26 national insurance contributions while self-employed women
with a small earnings exemption will get £27 (90 per cent
of £30). Subject to Parliamentary approval, these changes
are intended to be effective for women with an expected week of
confinement on or after 20 August 2000.
Family Credit (FC)/Working Families Tax Credit
(WFTC)
23. From October 1999, Family Credit (FC)
and Disability Working Allowance (DWA) will be replaced by the
Working Families' Tax Credit (WFTC) and Disabled Person's Tax
Credit (DPTC) and administered by the Inland Revenue.
24. FC/WFTC is awarded for a six month period;
so parental leave taken within the award period will not have
any impact on the award. FC/WFTC, however, is an in-work payment
and is designed to provide an adequate level of support by interacting
with earnings from remunerative work. A drop in family income
during a period of unpaid parental leave may lead to novel entitlement
to in-work payments, including WFTC. Some families would be floated
on to WFTC if one partner stopped work to take parental leave,
or, if a renewal claim coincided with a period of parental leave
for one partner, then only the earnings of one partner would be
taken into account and the WFTC award would be at a higher rate.
In contrast, lone parents and couples where the partner taking
parental leave was the only partner working, would no longer be
eligible to claim.
25. In summary, all families whatever their
level of earnings will have to judge whether they can afford to
take time off work unpaid. Under the current rules, some will:
— float on to WFTC for the first time
if one partner is in remunerative work and one is on parental
leave or, if a claim is renewed, WFTC will be awarded at a higher
level. In both cases only the earnings of the partner in remunerative
work are taken into account. As an award of FC/ WFTC lasts for
26 weeks, earnings will continue to be enhanced by WFTC even after
the parental leave has ended and normal earnings resumed;
— qualify for IS/JSA. Lone parents
in particular will be able to claim IS;
— be unable to qualify for IS/JSA/FC/WFTC
and would have to rely on their own resources.
Disability Working Allowance (DWA)/ Disabled Persons
Tax Credit (DPTC)
26. DWA/DPTC will be affected by parental
leave in a very similar way to FC/WFTC as it is an in-work payment.
DWA/DPTC is awarded for a 26 week period so any parental leave
taken within the period of the award would have no effect. However
a new or repeat claim to DWA/DPTC would fail if made while the
person was on parental leave as the person would not be in remunerative
work at the time the claim was made. Any unpaid parental leave
taken in the period used to calculate average earnings would result
in a higher award of DWA/DPTC, although adjudication officers
have a certain amount of discretion to ignore earnings which are
irregular or unusual. Extra costs could result from people floating
onto DPTC where their earned income would previously have disqualified
them.
Occupational Pensions (OPP)
27. Whilst occupational pensions are not
a social security benefit, there are financial implications for
occupational pension schemes. The European Court of Justice has
ruled that occupational pensions represent deferred pay. In general
terms, this means that an employee's occupational pension rights
continue to accrue during periods of paid leave, but not during
unpaid leave. Where parental leave is unpaid, any rights that
have accrued prior the commencement of parental leave will be
frozen until the employee returns to work.
28. If parental leave were to be paid, occupational
pension rights would continue to accrue in the normal way throughout
any period(s) of parental leave. Employers would be required to
provide occupational pension provision for three months over and
above the "normal" paid leave anticipated (such as annual
leave, maternity leave and sick leave).
Child Support
29. For child support, a non-resident parent
who takes unpaid parental leave will be able to ask to have their
maintenance reassessed on the basis that their circumstances have
changed. Non-resident parents who claim income support during
such leave will be assessed as having a nil maintenance liability;
those who do not qualify for income support will have maintenance
assessed on the basis of any income they receive. Maintenance
will need to be reassessed when the non-resident parent returns
to work.
30. A parent with care in receipt of Income
Support who normally receives maintenance direct from a non-resident
parent will have their income support increased if their maintenance
is reduced. Where maintenance is paid direct to the DSS, parents
with care will see no change in their circumstances. However,
parents with care who claim Family Credit or who are private clients
of the Child Support Agency will see a drop in the amount of maintenance
received during periods when the non-resident parent is taking
unpaid leave. This may lead some to claim Income-Support.
COMMITTEE'S
SPECIFIC QUESTIONS
31. The Committee asked if the Department
would provide answers to four specific questions. The questions
and answers are set out below:
Would a lone parent taking three months unpaid
parental leave be entitled to any or all of the following (where
appropriate depending on their income): contribution-based JSA,
income-based JSA, Income Support, Housing benefit or Council Tax
Benefit?
Under current rules, a lone parent taking three
months statutory parental leave would be able to claim IS. However,
they can elect to claim JSA (whether income- or contribution-based),
but if they do, they will have to show that they are available
for and actively seeking employment in addition to the other conditions
of entitlement.
Contribution-based JSA is not affected by any
other income (other than earnings and occupational/personal pension
payments) or capital. As long as the person has paid sufficient
relevant National Insurance Contributions and satisfies the labour
market conditions for receiving benefit, they could receive contribution-based
JSA.
Entitlement to income-based JSA and IS are,
however, affected by income and capital. Capital of £3,000
and under is ignored but for every £250 (or part of £250)
over £3,000, weekly benefit entitlement is reduced by £1.
If capital exceeds £8,000, neither income-based JSA nor IS
are payable. Any income a person has will be taken fully into
account against benefit entitlement (although some forms of income
can be wholly or partially ignored).
A lone parent taking three months unpaid parental
leave would be entitled to claim Housing Benefit and Council Tax
Benefit as long as they satisfy the normal conditions—that
they have a liability to payrent /Council Tax.
Would an individual taking parental leave whose
partner was working be entitled to any of the above benefits?
If the person taking parental leave has a partner
who was working, this will not affect the person's entitlement
to contribution-based JSA. Entitlement will be decided using the
same criteria as for a person whose partner was not working. Entitlement
to IS will also depend on whether the person claiming fulfils
the eligibility criteria for IS—eg if they are sick or disabled.
Entitlement to income-based JSA and IS will,
however, depend on the number of hours a week for which the partner
is working. If the partner is working for 24 hours or more a week
on average, neither income-based JSA nor IS can be paid. If, however,
the partner is working for less than 24 hours a week on average,
entitlement will not automatically be precluded. The partner's
earnings will, however, be taken into account (after deducting
an appropriate amount—normally £10 a week for couples)
when deciding the amount of benefit which can be paid.
A person taking parental leave whose partner
was working would be able to claim Housing Benefit and Council
Tax Benefit. Full time work does not rule out entitlement to Housing
Benefit and Council Tax Benefit. The partner's earnings would
affect the amount of Housing Benefit and Council Tax Benefit payable.
They could also get Working Families Tax Credit if their income
was low enough.
What would be the potential benefit entitlements
of a person who had to take unpaid parental leave for six weeks
because:
(i) She or he had to look after a child
who was a member of the family because her/his partner was temporarily
absent from the UK; or
(ii) She or he had to look after a child
on a full-time basis because the person normally looking after
the child was ill or temporarily away from home (see regulations
14 and 19 of the Jobseeker's Allowance regulations 1996).
Under JSA Regulation 14 a person will be treated
as being available for work;
"if he is a member of a couple and is looking
after a member of his family who is a child while the other member
is temporarily absent from the UK for a maximum of eight weeks",
and
"if he is temporarily looking after a child
full-time because the person who normally looks after the child
is ill or temporarily absent from home or the person is looking
after a member of the family who is ill, for a maximum of eight
weeks".
Under JSA Regulation 19 a person will be treated
as being available for work;
"if he is a member of a couple, in any week
during which he is for not less than three days temporarily looking
after a member of his family who is a child while the other member
is temporarily absent from the UK for a maximum of eight weeks",
and
"in any week during which he is for not
less than three days temporarily looking after a child full-time
because the person who normally looks after the child is ill or
temporarily absent from home or the person is looking after a
member of the family who is ill, for a maximum of eight weeks".
Under these circumstances they would be treated
as available for work and actively seeking work and so entitled
to JSA, if all other conditions are met. If the period is over
eight weeks they could be entitled to Income Support.
IS can be paid to a person who is looking after
a child who is a member of their household while their partner
is temporarily absent from the United Kingdom, or is looking after
a child because the person who normally looks after the child
is ill or temporarily away from home. This will apply when on
statutory unpaid parental leave, subject to their meeting the
other entitlement criteria. They could also get Working Families
Tax Credit if their income was low enough.
A person taking six weeks unpaid parental leave
to look after a child because the partner was temporarily absent
from UK or ill would be able to claim Housing Benefit and Council
Tax Benefit. In addition, if they were already in receipt of Housing
Benefit and Council Tax Benefit, the partner's temporary absence
would not affect the amount of Housing Benefit and Council Tax
Benefit in payment.
In the case of an individual receiving Family
Credit or Working Families Tax Credit at the point when parental
leave began, can you confirm that this benefit would continue
to be paid? If the award expired during the period of parental
leave, would the individual be able to renew the award whilst
temporarily absent from work?
Family Credit and Working Families Tax Credit
are awarded for a six month period and therefore will continue
to be paid if a period of parental leave is taken during the currency
of the award. If a renewal claim coincided with a period of parental
leave, and the renewal claim was made by a lone parent or by a
couple where the partner taking parental leave was the only partner
working, then those people would no longer be eligible to claim.
June 1999
