If everyone has access to a pension thanks to auto-enrolment, how will employers retain and recruit the best people in the war for talent? Is GLA the inexpensive, simple way for an employer to differentiate versus their industry competitors?
There is also an opportunity stemming from the fact that many schemes require updating, for example, in light of the reduction of the Lifetime Allowance to £1m in April 2016.
Many senior employees have pension pots in excess of this and benefit from traditional ‘registered’ group life schemes, which are added to the pension pot as part of the lifetime allowance calculation, and could incur a tax burden on death.
Group Income Protection (GIP)
From 6 April 2017, applicants for Employment and Support Allowance (ESA) who are assessed as unfit for work but capable of work-related activity (WRAC) will receive a lower level of State benefit which is equivalent to Jobseeker’s Allowance.
This means that the value will fall from £5,312 to £3,801 per year. In the existing market, all schemes with an ESA and WRAC state benefit deductible need to be reviewed.
We estimate that as much as half the market is on this basis, so around 8,500 employers’ and 1m employees’ benefits could be affected by this reduction in State benefits.
Now is the time to talk to employers about considering GIP. Can anyone really live on the £3,801 figure planned from April 2017? The need is most certainly there, as the two illusions that “it will never happen to me” and ”if it does happen to me then the State will provide” are gradually being dispelled.
Approximately 250,000 people leave employment due to ill health every year, and the benefit levels are unbelievably low. There are around 2.4m people already claiming State disability benefits, with an estimated cost to the UK of £36bn.
State benefits change with time and circumstances. The only way to ensure a particular income is to have a fixed GIP income, and that way you don’t have to worry about relying on any potential additional payments.
As well as removing the link to State benefits, a further area to discuss is around pension and National Insurance contributions. In 2016/7 National Insurance is 13.8 per cent of salary plus a further contribution for pensions.
GIP schemes which cover pension and NI contributions can therefore help to protect employees’ income in working life and retirement.
In the existing market, we still have other outdated scheme designs, specifically integrated and net pay schemes. These were created in the 1990s when state benefits were more generous (in terms of monetary amount), tax-free and based on an ‘own occupation’ definition of disability.
