When the default retirement age was removed in October 2011, the Group Risk industry secured an exemption i.e. you could terminate an employee’s entitlement to benefit when they reached a cessation age of “the greater of 65 or State Pension Age”.
Specifically there was a fear that a Group Income Protection claimant may have to be paid until they died as the contract of employment could not be ceased without going through a formal capability dismissal. That could lead to the costs of allowing people into schemes increasing dramatically as age is the biggest determinant in setting group risk prices.
But the exemption is only guaranteed if the organisation has insurance in place. The worry is that the last time I looked many organisations had not changed their termination age from 65. Our data suggest that just over half (50.6%) of our Group Income Protection policies still have a fixed termination age of 65 or less. [i]
If a younger employee claimed, there could be a period of non-insurance (from 65-68 years) and so in such instances would the exemption still be valid? The employer might be asked to self fund the cover for the extra three years or possibly even longer. Inevitably this has not happened yet and therefore not been assessed in Court, but the only way an organisation can guarantee that they can cease an employee’s benefit is by adopting “65 or State Pension Age”.
So with many organisations having not adopted a change, why is it important, now more than ever, to address this? In May 2017 the Government responds to a consultation on the State Pension Age and initial views are that the only way is up! [ii] For anyone born after 06/04/78 the current pension age is 68 and this looks to be going up to 70. There is already a 3 year gap of non-insurance between 65 and 68 and so in effect a 5 year period of non-insurance would happen if an employer retained the current cease age. [iii]
For income protection there are clear implications for continued service for employees who are absent now. But there are also policies for death benefits that have not amended their termination dates. In our portfolio 41% of our Group Life Lump Sum policies still have a fixed termination age of 65 or less [iv] Change is becoming more urgent as the State Pension Age will be over 65 from 6 March 2019 iii – within a typical two year rate guarantee
As an industry we worked really hard to gain an exemption and to future proof and protect your organisations going forwards, is now the time to ensure that you adopt a more modern termination date for your benefits? I would suggest so, as the gap between many organisations’ current benefit termination ages and the State Pension Age is only going to grow and, with the jury out on any periods of non or self-insurance, certainty can only be gained by doing this.
[i] Canada Life internal MI – from portfolio report (Page 41, June 2016): GIP 2,362 not changed out of 4,670 analysed
[iv] Canada Life internal MI – from portfolio report (Page 35, June 2016): 6,002 not changed out of 14,597 analysed