For existing schemes, providing a review service to schemes if a deductible exists (with an aim to get it removed and a flat percentage scheme replacing it) provides a great consulting opportunity.
We believe that a straightforward benefit basis, where it is expressed as a percentage of salary – with no state deductible – would be clear and easy for employees and employers to understand. It is also likely to require fewer amendments when the government makes future changes to the benefit system.
Under this scheme design, employers and employees will be clear on the minimum benefit amount or income they would be entitled to if they experience long term absence, while protecting them from any further changes to state benefits at the same time.
If employers choose to go down this route, all employees would know exactly how much they are getting as a fixed percentage of income, should they suffer from a long-term absence.
One obvious advantage of de-linking the deductible is that higher earners would have a greater reduction than lower earners.
For example, a £150,000 earner would get around £107,500 of benefit on a £75 per cent minus state benefit (ESA and WRAC) scheme design, but if this was dropped (on a cost-neutral basis) to say 65 per cent (with no deductible), then the benefit would reduce to £97,500 benefit.
A £10,000 loss in potential benefit illustrates that, while on the surface this is a simple change, careful consideration is required.
With higher earners most financially affected, it is possible that organisations will just accept that the insured benefit has had to go up and renew on the deductible basis.
Concerns around adviser and employer apathy are commonplace in the GIP market and failure of advisers to drive the conversation will mean this transition to a de-linking of state benefit is not encouraged.
Evidence of this abounds, as even the exemption gained after the removal of the default retirement age in 2012 is not fully actioned.
We still have some schemes with the long-term incapacity benefit (e.g. 75 per cent minus LTIB) deductible which disappeared in 2007 and pension scheme-linked eligibility persists, which is frankly odd and costly in an era of automatic enrolment.
Advisers should consult on all of these legacy scheme design aspects as well as the removal of the deductible.
Make the most of this opportunity
So having saved £640m by 2020 to 2021 there is a clear move to get employers and employees to take on more responsibility for long-term absence.
But what could come next? Fortune Accounts are being considered for individuals to protect themselves.
