They’re under starter’s orders… and… THEY’RE OFF! Taking an early lead is Joe Bloggs Consultancy but he falls at the first hurdle as Mr Employer brings up obstacle
1 – we can’t afford it. Big Company takes over the lead with a lunch appointment but refuses to jump fence
2 – there’s no demand for it. Quick to takes its chance, Acme Corporation muscles in but… oh no… has fallen at fence
3 – it’s too complicated!” Sound familiar? Fortunately, it is perfectly possible to remove these barriers. Firstly, there has never been a better time to buy group risk. This is a highly competitive marketplace, characterised by higher free cover levels, better terms, more value added services and falling premiums as the economic difficulties facing employers have fed through to pricing.
Having awaited Swiss Re’s Group Watch Report 2010 with some nervousness, it is extremely encouraging to see how well the group risk market has performed in a difficult economic environment. Although premiums have fallen for both death and income protection benefits, this largely reflects the competitive nature of the marketplace during 2009.
The “no demand” obstacle is undoubtedly challenging. The pensions saving gap is well understood by Government, policymakers and employers. However, under-saving affects other areas potentially far more devastatingly in terms of financial distress because timing cannot be predicted.
Loss of main household earnings through death, serious illness or disability is catastrophic for the family concerned. Yet the UK life assurance protection gap at the end of 2009 had risen to £2.4 trillion (£2,400 billion) and the income protection gap at the end of 2009 remained at £190 billion annual benefit. To put the life assurance protection gap into more understandable terms, this equates to an average gap of £100,000 for every person in the UK aged 25 to 40.
Given our changing demographics – we are living longer and will be working longer – and our minimal savings record, now might be the time to decide to take personal responsibility for our pension and protection provision and to migrate away from the mindset that “the State will provide”.
GRiD is seeking modifications to and clarification of the rules governing excepted group life policies
This is a primary focus for the new Coalition Government and the move to conditionality is already underway in the Welfare Reform arena. However, to date the importance of these crucial protection benefits is little understood, or “mañana” prevails. We must triumph over this inertia if we are to demonstrate the true potential for group risk benefits.
An employer’s role is crucial in effecting this change and we should not be afraid to challenge their attitudes to demonstrate the pivotal role of protection benefits in the employee package. Compared with the extraordinary challenges employers have faced over the last couple of years, facilitating a more cohesive and relevant benefits strategy ought not to be that difficult – and it might even yield some savings.
This brings me to the last obstacle – “it’s too complicated”. For group income protection, the key to understanding lies in an effective tri-party relationship between employer, adviser and provider. On the group life side, at least, the industry is seeking to simplify matters.
Currently, most corporate sponsored group death in service (DIS) schemes are subject to HMRC’s regime for registered pension schemes, even where the DIS benefits are provided outside of a pension scheme or where there is no pension scheme. This means that a Scheme Administrator has to be appointed, taking on all the responsibilities for monitoring and reporting that apply to pension schemes, and the scheme has to go through the HMRC registration process and the Lifetime Allowance applies to the benefits paid under the scheme.
GRiD is seeking modifications to and clarification of the rules governing excepted group life policies with a view to arriving at a situation where employers can establish a group life scheme with a simple declaration of trust, get tax relief on their premiums as a business expense and pay all lump sum benefits completely tax free – thus allowing simple group life to be sold alongside Nest.
We would caution that while this is the desirable outcome, it is by no means guaranteed. However, if it is successful, we could banish forever the “it’s too complicated” fence in the Group Life Championship hurdles race.