The taxpayer gains around £165m a year annually from the presence of group income policies, according to the research, Income Protection – working together to improve take-up, which identified £85m of savings resulting from lower welfare payments and £80m from higher income tax and National Insurance contributions.
Individuals also gain, with incomes £190m higher than they would be if income protection were in place, according to the report. The paper also identifies annual gains of at least £20m a year for return to work activities.
The research says the gains to taxpayers would rise to £725m if coverage of income protection policies in the UK rose to US levels.
The report suggests targeting incentives at those earning between £20,000 and £60,000 to avoid those segments where income protection mainly reduces welfare payment and those where income protection would be purchased anyway.
The report says a flat discount or Government contribution may be a better understood incentive and therefore be more effective than an incentive based on tax relief. It argues that even short-lived tax advantages, perhaps of three years, could play a powerful role in promoting income protection.
Zurich UK Life chief executive Gary Shaughnessy has written to the Chancellor of the Exchequer calling for tax rebate ahead of next week’s Budget.
Shaughnessy says: “Temporary tax rebates could work well as a shot in the arm to the market, stimulating the uptake of protection-type cover, and we encourage the Government to consider our proposal.
“A tax rebate would deliver considerable value to insured people, while the Government would end up making substantial long-term savings at a time when we know it has to find viable alternatives to high welfare spending.”
The report says: “Overall it is clear that income protection policies can bring benefits for individuals, employers and the taxpayer. Yet the very fact that the policies benefit a range of stakeholders is one of the reasons that may lead these policies to be under-purchased as those purchasing the product do not take into account the benefits to others.
“There is considerable potential for the market to grow with millions of individuals who could potentially benefit from the presence of income protection policies. Reflecting the fact that many stakeholders gain from income protection policies, there is also more that each of these stakeholders can do to ensure that the market reaches its potential.”