Pensions have always been a traditional feature of benefits packages. However, as the introduction of automatic enrolment means that all employees will be enrolled into their company pension scheme unless they decide to opt-out, Paul Avis of Canada Life Group Insurance argues that now is time to turn the spotlight on Group Income Protection (GIP).
Providing instant financial protection should an employee lose their job due to illness or incapacity, GIP also safeguards an employees’ financial future by ensuring pension and National Insurance contributions are still paid. With a whole host of added value services provided, such as Employee Assistance Programmes and rehabilitation services, now is the time to support the profile of this crucial protection product. Company pensions have long been perceived as the cornerstone of traditional benefit packages. The recent introduction of automatic enrolment (AE) has cast pensions into the spotlight further still, with employees automatically being enrolled into their company pension scheme unless they choose to opt-out. With recent reports suggesting that just nine percent of workers have opted out so far, the outlook for pension savings is fairly positive.
However, the opportunities created by automatic enrolment aren’t limited to the pension market alone. Now is the perfect time to promote the value of Group Income Protection (GIP); after all, what is a pension other than a deferred income? Regardless of company size, all employers will have to offer a pension scheme by the end of 2017, so why not turn our focus to a benefit that protects employee’s current finances now that pension savings are effectively taken care of? Group Income Protection is a relatively inexpensive benefit, costing as little as 0.2-0.5 percent of salary (for a limited benefit payment plan), yet it provides invaluable financial protection should an employee find themselves unable to work due to illness or incapacity. Employees arguably have the greatest financial responsibilities during their working years, with many facing mortgage/rent and bill payments as well as the cost of supporting a family. GIP therefore provides an income in the event of incapacity that allows staff to meet these payments, even if they find themselves unable to work, making it the obvious priority benefit for anyone who would struggle without their salary. GIP can benefit an employee in 13 or 26 weeks, so why put so much emphasis on a deferred income when the current income may be threatened if an employee goes off sick tomorrow?
Focusing on pensions makes financial sense when looking to maintain your income in 20, 30 or 40 years’ time. However, if an employee were to lose their salary due to ill-health, how would they be able to continue contributing towards their pension? Having Group Income Protection in place means that an employees’ pension and retirement plans can be maintained, despite a break in regular salary payments. Traditional GIP pays a benefit while an employee is unable to work, right up until they recover or retire. If they reach retirement, they can then receive the full pension that they have continued to contribute to and so a traditional waiver of contribution is covered – a feature which no longer exists on pension plans. In addition to a basic benefit, Group Income Protection can also provide cover for National Insurance contributions, as well as pension scheme contributions, and staff will remain in their employer’s service. This means that they will still have access to other benefits, such as private medical insurance or cash plans; these benefits can prove invaluable when an employee develops a long-term illness. After all, if their employer chooses to cease a contract after Statutory Sick Pay has finished, then staff can lose such benefits.
Limited payment GIP can help advisers replicate the sales success of cash plans as affordable, entry level benefits. It is also possible to include a lump sum payment at the end of the limited payment period to meet a variety of needs e.g. to fund extra pension costs or provide a stop-gap when regular payments cease. From an employer perspective, if restricted categories of employee are covered for GIP (e.g. executives only) expanding the GIP cover to other categories should reduce the average cost per employee and the amount of medical underwriting needed, enhance the likelihood of tax relief and provide a new benefit for those previously uninsured.
The advantages of GIP are easily evidenced, but the effects of Welfare Reform mean that the profile and value of Group Income Protection will continue to be enhanced. Measures such as Universal Credit, benefit capping and the replacement of Disability Living Allowance with the Personal Independence Allowance means that there is little support for people who need income tomorrow. The government’s cap on benefits is now fully in place, meaning that no household can receive more than £500 in benefits a week (£350 for single adults). If the main breadwinner of a family is suddenly unable to work, it may therefore be hard for a family to keep up their repayments and fund the rising cost of living. State Benefits may also be reduced if any ill-health early retirement pensions and personal income protection is being received, so those who have some protection via these mechanisms may lose benefits.
However, qualifying for State welfare benefits is much harder these days, as they are only intended to go to the most needy. The Work Capability Assessment (WCA) is used by the Department of Work and Pensions (DWP) to assess whether a claimant qualifies for benefits. The assessment process is similar to the ‘activities of daily living’ definition for permanent total disability used for group critical illness. A claimant is being assessed against being able to do any form of work. The activities cover physical, mental, cognitive and intellectual functions like standing and sitting, manual dexterity, making yourself understood, continence and learning tasks. For example, for an activity to be assessed as the most severe you might not be able to move between seated positions without physical help from another person. So have no illusions here. A person will only qualify for the benefits if they can’t do any form of work and have to be seriously and permanently disabled to get the highest level of benefit. The DWP’s own statistics graphically demonstrate this. From June to August 2012, for claimants where the WCA assessment was completed, 48 percent were assessed as fit for work, 23 percent were placed in the work related activity group and only 29 percent were placed in the support group.
Most of group income protection schemes are insured on an ‘own occupation’ definition of disability. So we assess whether a person’s illness or injury prevents them from, and makes them incapable of, performing the material and substantial duties of their normal occupation and that they are not engaging in any other gainful occupation. Take a bricklayer for example. The insurer will check whether they are able to work as a bricklayer, whereas the DWP will check whether the bricklayer can do any form of work. So, if the bricklayer could still do a sedentary type of job, like administration in an office, they would be expected to seek that sort of work. Now this could be a problem, because not many companies will be looking for administrators with bricklaying experience!
At Canada Life we treat employees who are the subject of a potential claim as VIPs, with unlimited access to our experienced, in-house, Claims Management Consultants and medically trained Rehabilitation Consultants. Our mandate is a simple one – to pay all valid claims for the period of their validity. We do not outsource this important process as we believe that the quality of the people dealing with those who are long-term sick should be of the highest calibre and, in the emotive world of employee health, pragmatic but focused professional action is needed. If a claim is likely, we efficiently collate the medical evidence through tailored requests for clinical information, focus on providing clarity of decision making during the adjudication process and communicate our decision, face to face where possible, through our regional team.
As well as the financial advantages, there are a whole host of added-value services provided alongside most Group Income Protection schemes. These services are designed to rehabilitate and reintegrate the employee back into the workplace. An integral part of this is access to our vocational rehabilitation services which help to complement occupational health (OH) through, in most instances, the provision of some specific case support. This can be a lifeline for Small and Medium Enterprise (SME) employers who do not have access to occupational health services and need assistance to manage complex employee health scenarios. If an SME employer has built a business with their staff, then de-personalising the return to work is essential. Having a designated, medically qualified, vastly experienced rehabilitation consultant is a gift for employers who can mitigate their claims experience with early intervention, ensure compliance with the Equality Act (2010), reduce occupational sick pay and, in some cases, reallocate costs to more preventative work. By engaging with our rehabilitation services where applicable, employers also ensure the most appropriate and suitable outcome for all involved and save on the cost of a diminished workforce or having to recruit a new staff member that may require training.
In some cases, a long-term absence from work could have been prevented by using the additional services provided as part of a Group Income Protection scheme. An insurer embedded Employee Assistance Programme (EAP) is provided as part of a GIP policy, meaning employers no longer have to pay for such a service directly. EAPs are a great way of supporting and maintaining the health of employees, with a whole host of services that help them to identify and resolve personal concerns that may affect job performance e.g. health, marital relations, family, financial, alcohol, drugs, legal, emotional, stress, or other personal issues. These services have to be actively promoted and we have developed a full suite of posters, case studies, guides etc. to ensure service utilisation. As part of our thought process to get our EAP promoted we have also extended the service to non-insured, as well as insured, employees as it would seem odd to only communicate to some employees and not others!
The most advanced EAP offerings also have online and telephone legal support for employers, offering compliant documentation, legislative updates, advice on tax and health and safety issues, as well as case-by-case support for individual situations. This could significantly reduce the costs incurred from retained or out-sourced legal services and benefit organisationsof all sizes. With all these added services, as well as the ability to safeguard your employees’ finances in the present as well as in the future, it would be foolish to overlook Group Income Protection. It should be considered alongside the statutory pensions requirement, particularly as automatic enrolment has successfully covered this area of the market. Make GIP the priority benefit and rest assured that your staff are being brilliantly looked after and are healthy and happy as a result, which can only do wonders for company productivity and provide a clear differentiator for staff attraction and retention.