Paul Avis: Ever more need for protection 

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The first rule of insurance is to identify the need for it and as State benefits reduce, or charges for their administration increase, there is more need than ever before for Group Risk products.

State Disability Benefits

Under the new Universal Credit regime, the Limited Capability for Work element will be abolished to mirror changes to Employment and Support Allowance, reducing support for those deemed capable of some work related activity. As part of ongoing welfare reform and the move to Universal Credit, from 06 April 2017 applicants for Employment and Support Allowance (ESA) who are assessed as unfit for work but capable of work-related activity will receive a lower level of State benefit, equivalent to Jobseeker’s Allowance. This means that the value will fall from £5,312 to £3,801 per year. Can anyone really live on this? Assuming not, then Group Income Protection (GIP) could be the most important benefit any employer will purchase on behalf of its employees as ongoing salary payments are needed to fund mortgages, household bills, debts, school fees, etc.[1]

Additionally important, as ESA is only one component of State disability support, the benefit cap is reducing from 07 December 2016. Currently it provides £500 per week for single parents and couples and £350 per week for single people. From December, the total amount a couple or a single parent can receive in benefits is £442.31 a week (£23,000 per year) in London or £384.62 a week (£20,000 per year) elsewhere.[2]

A less well-known announcement in the Summer Budget 2015 was that from 1 April 2018 new Support for Mortgage Interest (SMI) payments will be paid as a loan, repayable upon claimants’ return to work or sale of the house. On 01 April 2016, the SMI waiting period was extended from 13 weeks to the pre-recession period of 39 weeks, and a capital limit was maintained at £200,000.[3] The interest rate paid to the mortgage lender is based on the Office of Budget Responsibility rate, which is currently 3.12%, and not the specific lender charging rate. Housing benefits are currently the only element of State support that GIP is means tested against (unless contributory ESA is reclassified under Universal Credit) but from April 2018 will also be under a ‘nil earnings’ rule, i.e. it won’t be paid if individuals are in receipt of GIP.[4] With payments at £517m per annum in 2010/11, the changes to Housing Benefit will reduce this to an estimated £272m in 2017/18.[5]

In simple terms, GIP is needed more than ever. Employees’ mortgages may not be paid, they will be expected to live on £3,801 per year and, even if they do qualify, their quality of life will diminish due to the financial impact of such large reductions. If they have savings of £16,000 or more, they will receive nothing at all from the State.[6]

State Bereavement Support and Charges

The current system of bereavement benefits, including Bereavement Payment, Bereavement Allowance and Widowed Parent’s Allowance, will be replaced with a new single Bereavement Support Payment. This will be introduced for new claims from April 2017.

The new system will focus support on the 12 month period immediately following the bereavement in a bid to cover the additional costs of bereavement – this is a big departure, especially in terms of Widowed Parent’s Allowance which is currently paid until the youngest child leaves education. Age will no longer be a factor in determining eligibility and National Insurance contribution conditions will be simplified to make entitlement easier to understand. In the current system, bereavement benefits are taken into account when calculating entitlement to means tested benefits and Bereavement Allowance and Widowed Parent’s Allowance are both included within the Benefit Cap. Bereavement Support Payment, on the other hand, will not affect Universal Credit entitlement and will not be included within the Benefit Cap.

When a parent dies, families currently receive a one-off, tax-free lump of £2,000 and a taxable weekly benefit of £111.20 per week paid until the youngest child ceases to qualify for Child Benefit. From April 2017 the lump sum will increase to £5,000 (which may stop people crowdfunding funeral costs!),[7] but the ongoing payments will be limited to £400 per week for just one year. It is estimated that 88% of working families will be worse off as a result.[8]

So while State benefits are reducing for support, charges on death are increasing! The Government has proposed a new tiered system of probate fees in England and Wales, based on the value of the deceased’s estate, rather than the current flat fee of £215 (£155 if a solicitor is being used). The new system of tiered charges would result in some paying as much as £20,000 for estates worth more than £2m.[9]

For estates worth between £500k and £1m the new fee will be £4,000, rising to £8,000 for those worth up to £1.6m, and £12,000 for those valued at between £1.6m and £2m. Given the sharp rise in the value of property in many parts of the UK in recent years, many families could find themselves hit by the higher charges after a loved one passes away. In all cases, the fee is in addition to any Inheritance Tax due. The changes are part of a drive to reduce the cost of running courts and tribunals, and raise £250 million for the Exchequer.[10]

Insurers offer Group Life Assurance (GLA) and in addition to the financial benefits, most also offer Bereavement Counselling and Probate Helplines, helping dependents and survivors to cope emotionally and practically with the death of a loved one. Death in Service, or Spouses’, Pensions can provide an ongoing income (in addition to lump sum benefits), for partners or the mutual children of the affected couple.

Summary

So it is simple: if you have not considered it before, consider GIP and GLA! The alternative is that if you are long term sick and want to continue to live in the style to which you have become accustomed, or a family member dies and you want to bury them with the respect and dignity commensurate with their quality of life, do not look to the State for more than minimal support. Protection insurance is the only real option to give you and your colleagues any real support in an ongoing period of reductions in State support. With costs starting at 0.1% of salary for GLA and 0.25% of salary costs for GIP, budget protection options mean that price is certainly not a barrier to an opportunity for great peace of mind, improved retention and stronger attraction for new staff.[11]

 

[1] https://www.canadalife.co.uk/group-insurance/group-income-protection/welfare-reform

[2] http://england.shelter.org.uk/get_advice/housing_benefit_and_local_housing_allowance/changes_to_housing_benefit/benefit_cap?&gclid=CKy1v6aS888CFfMV0wodxBAPYQ

[3] https://www.gov.uk/support-for-mortgage-interest/what-youll-get

http://debtcamel.co.uk/budget-cuts-help-with-mortgage-interest/

https://moneyaware.co.uk/2015/07/how-will-upcoming-benefits-changes-affect-my-dmp/

[4] http://www.disabilityrightsuk.org/news/2015/july/summer-budget-2015

p92 http://www.legislation.gov.uk/ukdsi/2013/9780111531938/pdfs/ukdsi_9780111531938_en.pdf

[5] https://www.politicshome.com/news/uk/communities/opinion/council-mortgage-lenders/62554/government-support-borrowers-difficulty

[6] https://www.gov.uk/employment-support-allowance/eligibility

[7] https://www.corporate-adviser.com/issues/october-2016/group-risk-comment-oct-2016/?cmpid=canews_2737478

[8] http://www.childhoodbereavementnetwork.org.uk/media/21305/CBN-bereavement-benefit-changes-briefing-Jan-2015.pdf

[9] http://www.which.co.uk/news/2016/06/probate-fees-set-to-rocket-446338/

[10] https://www.thegazette.co.uk/wills-and-probate/content/100543

[11] GRP1247 & GRP1383

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About Paul Avis

Paul Avis first joined Canada Life Group Insurance as a Sales and Marketing Director in 2009. He became Marketing Director in January 2013 in order to focus on proposition and market development initiatives. In an intermediated B2B marketing environment, the organisation is seen as a technical, thought leader in the complex arenas of employee health management and protection. Paul joined Canada Life from HR services organisation Ceridian, where he carried out the role of corporate development manager.

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