A legal case may bring much needed compensation to put the claimant back in the same position as they had been previously, but for the negligence or injury, as far as is possible. In reality, no amount of money will properly compensate a person for their physical or psychological symptoms, their loss of independence, the impact on their family, their home life and/or their career.
Where long term injuries are suffered, compensation is carefully calculated so that the claimant has sufficient funds for all of their needs for the rest of their life.
However, there are limits to compensation. Damages claimed are based on predictions which, despite the use of expert evidence, can be incorrect. Items purchased can cost more than their initial valuation. Unpredictable changes in the claimant’s life may mean that they have increased needs which could not have been anticipated. As such, many claimants continue to rely on benefits even after receiving compensation and they may have concerns that this will affect the benefits they rely on.
Non-means tested benefits
Non-means tested benefits, such as attendance allowance, carer’s allowance, disability living allowance and personal independence payment, should not be affected by your compensation. This is because your entitlement to those benefits is based on factors (such as your age, level of disability, family set up). Your financial position is not taken into account.
Means tested benefits
Means tested benefits (such as income-based job seekers allowance, employment and support allowance (ESA), income support, pension credit and universal credit) take your savings, capital, income, property, shares and other assets into account. If you have income or capital over a certain threshold, your benefits could be reduced or stopped entirely.
The thresholds differ depending on the benefit and change over time. However, the current position with most benefits is that any capital above £6,000 will mean that your benefits are reduced on a sliding scale. If you have more than £16,000 capital, you could lose your benefits entirely.
If you receive a lump sum in compensation, either by way of a payment during the case (‘an interim payment’) or on settlement of your claim, you may no longer be entitled to means tested benefits. This also applies if your compensation is paid in annual instalments (‘periodical payments’) or if you have a combination of annual instalments and a lump sum.
52 week grace period
After you receive your first payment of compensation (either during the case or after it has settled), there is a period of 52 weeks during which your damages will not be counted against your benefits entitlement. However, you can’t simply spend or give away all of the money during this grace period so that your benefits aren’t affected. The DWP have strict and complicated rules about how the money can be spent. If the DWP think that you have deliberately frittered away or given away your money to avoid losing your benefits, then you may lose your entitlement to benefits altogether. As a result, many claimants look for other, more reliable ways of protecting damages and their benefits, such as a personal injury trust.
Personal injury trust
There are ways of ringfencing your damages so that they do not impact on your entitlement to benefits. A personal injury trust can be set up easily and the damages paid into it. Your damages must be kept separate from all other assets and the trust can only be used for compensation. This means that, when your means are assessed, the money in the trust is ‘ringfenced’ and therefore is not taken into account.
“The benefits system is complicated and constantly evolving. I would always advise those receiving compensation to get legal advice about the impact on the benefits they, or their family, are already receiving. Failure to do so can have huge financial consequences.”
This information is for educational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. © Shoosmiths LLP 2023