Paul Avis, marketing director at Canada Life Group Insurance, analyses why recent legislative changes and Government policies have created significant opportunities for the UK group life assurance (GLA) market. In Avis’s view, the days of easy pickings are past, but there is plenty out there for the bold and the innovative.
Pensions automatic enrolment (AE) has been progressing since October 2012, and soon businesses of all sizes will have to offer staff a company pension.
With pensions made universal, how can organisations differentiate themselves from their competition and make their employee benefits package stand out?
Existing and potential staff will be looking for a wider benefits offering, and GLA is a simple, inexpensive way for employers to fulfil this.
AE gives advisers a convenient starting point for a broad conversation about benefit provision, and an estimated 395,000 – 539,000 small and micro employers could have duties in 2017 alone.
There are only 42,848 registered schemes in the UK though, compared to 5.5m businesses.
While not every business will be eligible for GLA, the only way to see that discrepancy is as a massive growth opportunity.
Bereavement benefits changes
The current system of bereavement benefits will be replaced with a new single Bereavement Support Payment for new claims from April 2017.
The new system will focus support on the 12 months immediately following bereavement in a bid to cover the additional costs – this is a big departure, especially for 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 sum of £2,000 and a taxable weekly benefit of £111.20 per week 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, but the ongoing payments will be £400 per week, for just one year.
It is estimated that 88% of working families will be worse off as a result.
Rising death charges
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.
Currently, there is a flat fee of £215 (£155 if a solicitor is used).
The new system of tiered charges would result in some paying as much as £20,000, for estates worth more than £2m.
Given the sharp rise in property value in many parts of the UK in recent years, many families could find themselves hit by higher charges after a loved one passes away. In all cases, the fee is in addition to any inheritance tax due.
In addition to the financial benefits of GLA, most products also include Bereavement Counselling and probate helplines, helping dependents and survivors to cope emotionally and practically with the death of a loved one.
These support services will become more relevant than ever, and advisers and employers will need to understand the value they represent for their employees.
Alongside registered GLA, are excepted schemes. One of the key differences is any GLA pay-out in a registered scheme is tested against the Lifetime Allowance (LTA), while excepted schemes are not.
As the LTA fell from £1.8m in 2010 to £1m in April 2016, it doesn’t take much for high earners to fall foul of this limit, making excepted schemes seem a sensible choice for these types of employees.
We have already seen an increase in take-up of this kind of scheme, with benefits growing by 31% in 2015 according to Swiss Re.
Yet implementing such a scheme needs specific tax and legal advice, particularly when replacing a registered scheme.
Value of advice
This is where advisers can prove themselves invaluable. We want to make sure any growth we see is sustainable and in customers’ best interests.
Excepted is not a panacea to some of the limitations of registered benefits, but with expert guidance it can continue to be a vehicle for wider adoption of GLA benefits.
A final area of GLA which would benefit from advice is Death in Service (or spouse’s) pensions.
Interest rates remain at historical lows while annuitant life expectancy is increasing.
As a result, this benefit will increase in cost. There are two approaches advisers can take: urge employers to decide whether they can justify the continuation of the benefit, or consider alternatives such as additional lump sum amounts.
If employers decide they want to keep the benefit, it can be communicated as an exclusive benefit: fewer than 400,000 employees are covered by these schemes.
This gives employers an opportunity to celebrate their special benefits offering and the excellent value this brings to employees’ survivors.
These are some of the key opportunities we see in the UK. GLA may feel like a mature market, but there are plenty of new tricks it can learn to keep up with the times.
In summary, 5 market trends that offer opportunities to grow the GLA market are:
- Existing and potential staff will be looking for a wider benefits offering, and GLA is a simple, inexpensive way for employers to fulfil this.
- In addition to the financial benefits of GLA, most products also include Bereavement Counselling and probate helplines, helping dependents and survivors to cope emotionally and practically with the death of a loved one. These support services will become more relevant than ever
- Excepted schemes. As the LTA fell from £1.8m in 2010 to £1m in April 2016, it doesn’t take much for high earners to fall foul of this limit, making excepted schemes seem a sensible choice for these types of employees.
- A final area of GLA which would benefit from advice is Death in Service (or spouse’s) pensions.
- If employers decide they want to keep the benefit of Death in Service (or spouse’s) pensions, it can be communicated as an exclusive benefit: fewer than 400,000 employees are covered by these schemes.