Paul Avis: As state protection shrinks, group risk should fill the gap

Paul AvisChanges to state benefit rules from April 2017 and 2018 mean group risk cover could be the most important employee benefit companies provide to staff says Canada Life Group Insurance marketing director Paul Avis

The first rule of insurance is to identify the need for it. As state benefits decrease, the reality is that there is more need than ever before for group risk products.

As part of the ongoing move to Universal Credit, from 6 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.

Additionally, the benefit cap will reduce from 7 December 2016. Prior to this, it was equal to £500 per week for single parents and couples, and £350 per week for single people. The total amount a couple or single parent will be able to receive in benefits is £442.31 a week (£23,000 per year) in London, or £384.62 a week (£20,000 per year) elsewhere.

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. The SMI waiting period was extended from the current 13 weeks to 39 weeks in April 2016, and a £200,000 mortgage limit was maintained. The interest rate is based on the Office of Budget Responsibility rate, currently 3.12 per cent, and not the specific lender charging rate. Housing benefits are currently the only element of State support that GIP is means tested against, but from April 2018 will also come under a ‘nil earnings’ rule, which means it won’t be paid if individuals are in receipt of GIP. It’s worth noting that no benefit is payable if savings of £16,000+ are available to the claimant.

The current system of bereavement benefits will also be replaced with a new single Bereavement Support Payment for new claims from April 2017.

When a parent dies, family benefits are currently 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 but the ongoing payments will be limited to around £400 per month for just one year. It is estimated that 88 per cent of working families will be potentially eligible for less benefit as a result.

But while State support is reducing, 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 will result in some paying as much as £20,000 for estates worth more than £2m.

For estates worth between £500,000 and £1m the new fee will be £4,000, rising to £8,000 for those between £1m and £1.6m, and £12,000 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 higher charges after a loved one passes away. In all cases, the fee is in addition to any Inheritance Tax due.

Insurers offer Bereavement Counselling and Probate Helplines, helping dependents and survivors cope emotionally and practically with a loved one’s death. Death in Service Pensions can provide an ongoing income (in addition to any lump sum benefit) for the partner and the mutual children of the affected couple.

So it is simple: if your clients have not considered it before, GIP and GLA are priority purchases! Protection insurance is the only real option to give your clients financial, practical and emotional support in an ongoing period of reductions in State support. With costs starting at 0.1 per cent of salary for GLA and 0.25 per cent 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.