More than a million people aged 65 and over are now in work, the highest number since the government started collecting comparable data in 1992. But, as the risk of health problems increases with age, the rising cost of cover means that arranging protection for these employees can present problems.
Some measures are already in place. Given the potential for significantly higher premiums once the default retirement age was abolished, the group risk industry successfully obtained an exemption from the legislation in February 2011. This enables employers to withdraw benefits at state pension age rather than leave them open-ended.
To benefit from the exemption, employers must ensure the correct terms are in place by replacing the age 65 termination date with state pension age. Paul Avis, marketing director at Canada Life Group Insurance, says he still sees plenty of policies written to age 65. “Employers may be tempted to think they can just self-insure the additional years but this could be a risk. There is no case law yet to set a precedent but an employer could find itself with an open-ended liability if it ignores the exemption,” he explains.
Taking advantage of the exemption does carry a cost implication on some group risk products. On life assurance the cost is negligible, if anything, but on group income protection and group critical illness an organisation may see its premium increase by a couple of percentage points.
While it is perfectly legal to stop cover at state pension age, employers can choose to offer employees protection beyond this age if they wish. Most insurers will accommodate group life assurance up to age 75, using the claims experience seen in the individual market to set rates.
The other two products are more problematic. For group income protection, as there is no experience to draw on from the individual market, insurers will usually go up to age 70, balancing the potential for increased propensity to claim against the shortening benefit payment term.
Similarly, extending group critical illness cover can be more difficult. As well as a lack of data from the individual market, increased probability of conditions such as heart disease, stroke and cancer after this age means there is little appetite among insurers to extend cover.
With all products, the insurer’s willingness to extend cover can depend on the way it is arranged. Katharine Moxham, spokesperson for Group Risk Development (GRiD), explains: “If an employee reaches state pension age and you want to extend cover for them, the insurer will look to underwrite the employee. This means that cover is down to their individual circumstances and therefore it is not necessarily guaranteed.”
A more certain way to ensure that cover is in place for older employees regardless of their health once they hit state pension age is to take a blanket approach and raise the maximum age for everyone. Although this can mean a slightly higher premium, pooling the risk in this way is more acceptable to insurers.
However, because of the price implications, advisers say there is little appetite to do this across all group risk products. For example, Caroline Shepherd, business development manager (retention) for group risk at Jelf Group, says that while a high proportion of her clients have shifted the upper age on life assurance beyond state pension age, this is not the case for income protection or critical illness.