The pensions minister stated he was “open-minded but sceptical” about the government subsidising businesses to provide income protection at work.
Speaking at a roundtable on welfare yesterday (8 January), organised by Zurich, Steve Webb MP pointed out it was likely only the most paternalistic companies would be interested in providing free income protection.
He stated the benefits of group income protection were unlikely to be spread to those most in need - those in fragmented employment or on zero hours contracts.
Mr Webb asked whether prevention might be better than restitution, with money better spent on making sure people are off sick less in the first place.
Simon Foster, head of Zurich Corporate Pensions, said that he thought income protection definitely had a role to play in pensions provision, with the firm’s research finding benefits both for individuals and the state.
He said: “Employers see the benefit as well but we can do more to encourage them. They have a duty of care for their employees who are off work sick, but they also naturally have to consider the commercial impact of supporting them; this is where income protection cover can really help.
“We also need to think about long-term care and this where the insurance industry can lead the way in developing solutions.”
Mr Webb agreed that there was an opportunity for the private sector to supplement the state through long-term care insurance, stating that it is an area of minimal state provision where people want more.
He said: “So with the new pensions freedoms and the Dilnot cap this seems to be the next place for private insurance to supplement the welfare state.”
Teresa Fritz, a member of the Financial Services Consumer Panel, told delegates that income protection was a “jewel in the crown” of an insurance industry which “has some awful products”, so she was frustrated that it was not sold more.
“It’s a great product, it is affordable and it pays out, but consumers don’t know about it and it is not sold to them.
“The problem is that at key life stages like taking out a mortgage, critical illness is sold to them and that is the family budget on protection blown.”
Mr Foster stated that adviser reach is a significant influence in the sales of income protection policies and with existing inadequate coverage at the moment, they have a key part to play in establishing distribution arrangements.
Peter Chadborn, IFA and founder of Plan Money, said that income protection products were popular with his clients, but a barrier was potential confusion with payment protection insurance and a lack of easy access.
Huw Evans, deputy director general at the Association of British Insurers, added that income protection was a natural area for partnership between the insurance industry and government.
He also acknowledged the need for income protection products to be simpler, adding “there is a trend towards simplicity and transparency... but this needs to fit around the current regulatory framework”.
peter.walker@ft.com
