Is auto-enrolment into workplace sick pay schemes the next welfare policy target? Ellipse chief executive John Ritchie thinks it should be
Before the dust has even settled on auto-enrolment into pensions, the benefits industry is starting to ask “Should auto-enrolment to sick pay insurance be the next welfare public policy target?” The State can just as plausibly contend that all citizens should have some self-provision in the event of their incapacity for work as they should for income in old age. Incapacity for work is the single biggest risk for an economically active person and mitigation of that risk should be a first order priority.
Some are taking a sceptical position, arguing that even if auto-enrolment into sick pay schemes comes about it is a long way off, but there are several reasons why I think the opposite.
Setting up the infrastructure for employees to auto-enrol into pensions has given the State a template to follow. Although the benefit is different, the mechanisms for administering it are already there within HMRC and providers, and will be within employers too once the staging process is complete.
The public sector deficit will be eased by auto-enrolment of pensions, but spending on sickness benefits makes up a sizeable chunk of the deficit so the driver to privatise such benefits remains.
The public at large is starting to cotton on to what the State’s intention is as regards benefits – they should constitute a safety net and no more. To rely on the State alone will be to experience the 21st century equivalent of the workhouse.
The momentum generated by the introduction of auto-enrolled pensions will carry over into the privatisation of other welfare benefits, with sickness benefits at the top of the list.
Coherence in public policy in pensions has been largely achieved in that a flat rate universal old age income benefit has been established, means testing has been eradicated to design out penalties for savers and a mechanism has been created to ensure employers are obliged to facilitate a workplace pension. Tax relief on contributions to workplace pensions are firmly established for both employer and worker.
Admittedly, there are some aspects of how the State currently provides sickness benefits that make applying the auto-enrolment model more complex. For example, it is difficult to conceive State provision that would not have additional supplements for children. Any State benefit welfare structure is likely to continue to focus on “household” benefits and at certain levels it will not be rational for an individual to buy sick pay cover. That said, it is possible to create modelling devices to enable any individual employee to establish what they should have in top up sick pay insurance given the individual’s household welfare entitlements. Indeed, that approach will have significant fairness and beneficial consumer outcomes as lower paid people will not be using scarce earnings to buy insurance which would be penalised pound-for-pound by the welfare system.
How could auto-enrolment to workplace disability work? By establishing an obligation on employers to facilitate schemes with purchasing within those schemes largely by individuals, but only after some rules-based reflexive software is run to establish their precise needs and ensure that they are not overbuying cover.
There are issues here that need to be dealt with. Commercially uninsurable schemes and lives may need an insurer of the last resort but there are precedents – Pool Re, Flood Re, even Nest. The blend of the employer commitment to sick pay and the employee top up could come in several variations and the risk carriers will need to be consulted on that. However a model scheme can be posited.
There will be voices that say this is all too difficult and we need to let pensions auto-enrolment bed down before even starting to consider other ways in which UK citizens should have protection against situations that can lead to poverty. My contention is that a structure can be modelled and that we have an opportunity to build on the example set by pensions auto-enrolment which should be taken now.