Ongoing concerns that the Group Risk market has over the removal of the Default Retirement Age (DRA) were allayed slightly by the announcement in the Government’s recent consultation. They acknowledge the unintended consequences of the removal of the DRA on the Group Risk market and Employee Share plans. The fact that Group Risk has been formally recognised in the consultation is encouraging, but it does not mean we are out of the woods yet in ensuring a positive outcome for this important market.
The phasing out of the DRA is being driven by a number of factors. First and foremost is the right that no individual should be denied the opportunity to work simply because of their age. Linked to this is the simple fact that the age profile of the population in the UK is getting older. In addition, many people want to work beyond the current state pension age as they are remaining healthier for longer. Both individuals and the economy will also benefit from people working longer. Individuals will be able to save more for their retirement and by extending average working lives by one year the National Institute for Economic and Social Research is predicting a potential increase in GDP of 1%.
Whilst no one will deny there are many economic benefits in removing the DRA, without an age limit, the pricing of Group Risk benefits becomes very difficult and consequently more expensive for employers to provide. Other countries have recognised this problem and have allowed employers to legitimately cease providing Group Risk benefits for all employees before they retire. The logical solution would be to set this at the point the employee can claim their state pension. This will help to ensure that Group Risk benefits continue to be attractive and affordable for employers.
I, for one, will continue to campaign to ensure that the unintended consequences do not threaten the market. The benefits of the Group Risk market on easing the impact on the state are often forgotten. According to the annual Swiss Re Group Watch survey 2010, Group Life death benefits represent around 40% of all insured life cover held in the UK and insured group income protection, by amount, provides more than 70% of all benefits. Anyone who has been a beneficiary of a protection policy (individual or group) will know how important these benefits can be in providing both financial and emotional security.
Clearly, any decline in the market would place a significant and unwelcome extra burden on the welfare state at a time when the Government has a stated objective to cut back on public spending. The Government will do well to recognise that the insurance industry is a leader in the rehabilitation of sick employees and consequently responsible for getting them back into the workplace. The early intervention plans and claims management skills developed over the years have helped many people back to work. Without group risk benefits, individuals will potentially have to spend longer periods of time off work on sick leave and may have to be supported wholly by the state. Failure to recognise the services provided by insurers would be a huge oversight by the Government. Indeed, the state would do well to learn from the industry as to how it could help in rehabilitating the 2.62 million1 people claiming Employment & Support Allowance and Incapacity Benefits.
Group Risk Development (GRiD), Friends Provident and other providers have already fed in to the debate regarding the unintended consequences of the removal of the DRA to ensure they do not negatively impact on the Group Risk market. This message will need to be hammered home over the remaining months of the consultation. It is important that all stakeholders in this market from employers to insurers, and intermediaries to directors stand as a united front to ensure Group Risk benefits remain a key part of an employee benefit package.