A modest investment in a financial incentive for employers taking out group income protection would deliver the Government a substantial return says Zurich head of market management, corporate risk Nick Homer
The ‘Improving Lives’ Work Health and Disability green paper has provided the group risk industry with a golden opportunity to set out the case for why the Government should support the provision of group income protection (GIP), as part of the solution to address the UK’s significant welfare challenge.
The direct references to GIP in the green paper are evidence that the Government has been listening to the industry and recognises that GIP has an important role to play in helping employers – and the State – manage the risks and impacts of ill health. The green paper states ‘This Government is committed to acting but we can’t do it alone’.
An effective UK welfare solution must be a partnership between the State, employers and insurers, with GIP, and the rehabilitation support it provides, being at the heart of it.
The case for GIP is compelling, because it clearly supports key Government objectives to reduce welfare spending, tackle workplace sickness absence and increase productivity.
GIP benefit payments are made to the employer who in turn pays the employee continuation of earnings, via PAYE, consequently this generates tax and National Insurance (NI) revenues for the Government and reduces entitlement to potential welfare benefits.
Studies undertaken by Zurich have highlighted the benefits to the State and taxpayer. Our first report found that overall the taxpayer gains around £165 million a year from the current GIP market, as a result of the benefit payments made. This is made up of £85 million from lower welfare payments and £80 million from higher income tax and NI contributions.
A second study we published examined how the rehabilitation services provided by GIP policies help people back to work quicker, through timely access to vocational rehabilitation, such as cognitive behavioural therapy for those with mental health conditions, a major and growing cause of long-term absence. The report found that around £110m of additional financial benefits are achievable as a result of helping employees return to work sooner. That was made up of £74m in direct savings and £35m indirect, £27m of which is ‘additional’ government savings.
We know that return to work success among employers who provide workplace income protection cover is substantially higher than those who don’t, benefitting employers and the wider economy.
Given these benefits, the Government must create an environment that encourages those employers who are able to take action to protect their employees do so, helping the State to focus on those businesses and their employees who do not have the resources or compelling business case to implement private provision.
The provision of GIP can help drive a much-needed cultural shift amongst employers that supports employee wellbeing and creates a positive workplace environment that supports both health & safety and occupational health. A positive cultural and workplace behaviour can only be encouraged, it can’t be mandated.
One of the main barriers to employers recruiting and retaining employees with a disability or health condition is that they are not encouraged or supported in doing so.
In our green paper response we have asked the Government to consider a tax or National Insurance incentive to improve take-up of GIP amongst employers.
A modest financial incentive for the provision of GIP by employers would help to galvanise market activity in support of an effective GIP campaign that would help to highlight the social and economic issues facing UK workers and employers, highlight that the Government endorses GIP as part of the solution to a growing welfare challenge and help address some concerns regarding the cost of GIP.
It would also help intermediaries and insurers to engage with potential customers in a more focused and simplified way and encourages more intermediaries to engage with GIP, because it will reduce the effort required verses the rewards, supporting SME penetration.
Our consultation response has also argued that an effective way to educate employees about the need for greater protection would be to introduce an obligation on all employers to provide an annual benefits statement, which at the minimum level would provide details of Statutory Sick Pay (SSP) / Occupational sick pay and the Universal Credit welfare system. As well as clarifying what employees would be entitled to, it could also highlight any gaps, giving people the option to make further provision.
Finally, we have also highlighted the importance of the Government taking a cross-departmental strategic approach to addressing the welfare challenges. For example, the proposed treatment of GIP under salary sacrifice arrangements will present a barrier to providing this benefit for employees via flexible benefits arrangements.
Whilst GIP providers can’t help the Government tackle the major challenge of supporting those already out of work without any private protection, we believe that increasing the provision of GIP via employers is a critical up stream initiative that would help to mitigate the future welfare challenges and establish a sustainable welfare system for UK workers.