A new report issued jointly by The Institute and Faculty of Actuaries (IFoA) and the Building Resilient Households Group (BRHG), titled “Building Financial Resilience for Households in the Private Rented Sector” has been issued this week. The report, which is based on analysis performed by Hymans Robertson’s Life & Financial Services team, calls for the amendment of the rules regarding the interaction between Universal Credit and private insurance payments. The amendment would improve the financial resilience of individuals in private rented accommodation and could create cost savings for Government of over £150 million over five years.

COVID-19 has highlighted the limited ability of many households to cope with an interruption in regular income. 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 society, with over 4.5 million private rented households in the UK. Hymans Robertson’s 2019 report, Protecting generation rent, highlighted the scale of the challenge, estimating there is a £30bn rental protection gap in the UK.

Under the current Universal Credit (UC) rules, renters who receive income from insurance policies, including Income Protection (IP) and Family Income Benefit (FIB) payments, have it deducted pound-for-pound from UC entitlement. This means that it is effectively impossible to insure against facing a rent shortfall 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, the rules allow any insurance payment they receive to cover their mortgage to be completely ignored in UC.

The analysis in this new report suggests that by extending the disregard currently applied to mortgage payments, to all housing costs, would mean that all consumers can have the clarity and peace of mind that IP affords. Reduced renter reliance on UC, due to an increase in take up of IP, and reduced spending on temporary accommodation and preventative action when renters go into arrears following a financial shock, will provide overall savings for Government. 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.

The IFoA and BRHG hopes this analysis encourages the Government to give greater consideration to this important issue.

The full report can be found on the IFoA website.