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Severance Payments Briefing No 70


This briefing paper aims to highlight the impact that severance payments would have on entitlement to state benefits.

Although this paper will provide some information on state benefits it is important to remember that entitlement to such benefits are dependent upon your own personal circumstances. If you are unsure of your full entitlement organisations such as Citizens Advice Bureau provide advice and guidance on claiming state benefits.

Severance Payments

The effect that severance payments have on benefit entitlement depends on a number of factors. These include which types of benefits are applied for as well as what the severance payment is comprised of, i.e. holiday pay, pay in lieu of notice, redundancy, etc. Some examples of this are shown in the next section on Job Seekers Allowance.

However severance payments, in general, are normally regarded as capital in any benefit assessment and therefore could affect the level of benefits a claimant receives.

The rules for assessing capital and savings are dependent upon a number of factors including whether the claimant is under 60, over 60 (and if so, whether they stay in a residential or care home).

The table below highlights the current situation (July 2003) for assessing income-based Job Seekers Allowance and Income Support.

Age of Claimant

Lower Limit

Upper Limit

Under 60



Over 60



Over 60 and stays in residential/ care home



The lower limit is the amount of capital that a claimant can have without it affecting their benefit claim. If a claimant has the upper limit (or more) in capital then they would not qualify for any of these means-tested benefits.

In between the two limits the amount of benefits a claimant can receive would be reduced by £1 per week for every £250 (or part of £250) above the lower limit.

Job Seekers Allowance

Jobseeker's allowance (JSA) is a benefit for unemployed people who are capable of work. They also have to meet several other conditions. There are two types of jobseeker's allowance, contribution-based (non-means-tested) JSA and income-based (means-tested) JSA.

There are some unemployed people who may be able to claim income support instead. These people do not have to meet the same conditions.

Contribution-based jobseeker's allowance (JSA)

Whether someone can claim contribution-based JSA will depend on their National Insurance contributions (NICs). They will have to have paid National Insurance contributions in one of the last two complete benefit years before the tax year in which they claim JSA. They must also have contributions or credits for both these years.

Contribution-based JSA is paid for a maximum of six months. No dependants' additions are paid with contribution-based JSA. This means that a person receiving contribution-based JSA will not get more money because they have a partner or a dependant child.

However contribution-based JSA is not paid for any week covered by a payment in lieu of notice. Redundancy pay does not normally affect contribution-based JSA. However, if you get redundancy pay in excess of the statutory amount, you will not get contribution-based JSA for the period covered by the extra payment. If you received holiday pay as part of your final wage, you cannot get contribution-based JSA for up to four weeks after your job ends.

Income-based jobseeker's allowance

Income-based JSA is a benefit for unemployed people who have not paid enough NICs to receive contribution-based JSA or contribution-based JSA would not be enough to live on, for example, they have dependants.

Entitlement to income-based JSA depends on a person's income and capital (savings and property). The income and capital rules are the same as for income support, except for the treatment of part-time earnings.

Pay in lieu of notice is treated as earnings. Holiday pay in the first four weeks after leaving work also counts as earnings when working out entitlement to income-based JSA. After the first four weeks it is treated as capital. You will not be entitled to any JSA for the weeks covered by payments which are treated as earnings.

Redundancy pay almost always counts as capital when working out entitlement to income-based JSA. However, redundancy pay in excess of the statutory amount can prevent you getting any JSA for a period. If you get redundancy payments periodically, these count as income, but they are very rare.

The rules about contribution-based and income-based jobseeker's allowance and payments at the end of a job are complicated. You should consult an experienced adviser, for example, a Citizens Advice Bureau.

Income Support

Income support is an income-related (means-tested) benefit paid to certain groups of people who do not have enough money to live on. This means that any money the claimant already has is taken into account in deciding how much income support they should get.

The applicable amount will vary for each person according to his or her circumstances. The capital that a person has is also taken into account. This could also include severance payments.

Income support also acts as a 'passport' to certain other help. A claimant and their dependants will automatically qualify for the following:-

  • free school meals
  • free prescriptions
  • free dental care
  • vouchers for spectacles
  • free milk and vitamins for expectant mothers and children under 5, free vitamins for nursing mothers
  • maximum housing benefit
  • maximum council tax benefit.

Further Benefits

There is a further range of benefits that the may be applied for, dependant on the personal situation of the applicant. This includes whether you or your partner are working, you and your partners age and any dependants you may have. Other benefits include:

  • Housing Benefit
  • Council Tax Benefit
  • Child Tax Credit
  • The Social Fund etc

For further information on which benefits you may be entitled to it is advisable to consult an organisation with knowledge of the benefits system such as a Citizens Advice Bureau.


Entitlement to various state benefits is dependent upon each claimant's personal circumstance.

Organisations such as CAB will provide benefit advice and guidance.


Contacts list:

Dave Watson - d.watson@unison.co.uk

@ The P&I Team
14 West Campbell St
Glasgow G26RX
Tel 0845 355 0845
Fax 0141-307 2572

Top of page

Further Information

Advice Guide website


Department of Work & Pensions


Contacts list:

Kenneth MacLaren-

Dave Watson -

@ The P&I Team
14 West Campbell St
Glasgow G26RX
Tel 0845 355 0845
Fax 0141-307 2572