No longer just an insured benefit, group IP is making waves with a range of additional features and is set to benefit from auto-enrolment and changes to the default retirement age. Nicola Culley finds out why it could be a gold mine for advisers.
She exemplified the impact removal of the default retirement age had on group IP. Up to 50% of the queries coming into L&G have been to do with rejigging cover.
Baker said: “With the removal of the default retirement age last year, effectively that means benefits could have been paid indefinitely. So companies need to have the benefits set up so they so stop at pension age. What is interesting is that the bigger companies and brokers are quite at home with this.”
On 13 January last year the Department for Business Innovation and Skills confirmed the phasing out of the default retirement age between 6 April and 1 October 2011.
It meant age could no longer be used by employers to define different levels of benefits and would have a direct impact on group IP.
But successful lobbying by the group risk industry has resulted in exemption for insured group risk benefits. Instead, it allowed for benefits to be drawn in line with state pension age.
However, this will also be increasing over a staggered period; to 66 between 2018 and 2020, and gradually to 68 by 2046.
Baker said many advisers and brokers did not realise this was something to worry about now, given the increasing age was not coming in until 2018. But for group IP, she stressed, this was a moving target.
“There is a chunk of people who have not changed it. The smaller brokers and SME market tend to be more unaware of the implications. There is this perception of not needing to worry about it. But if somebody goes off sick now and cannot work again then it matters now,” Baker said.
“The bigger guys are switched on and I think it is just an understanding thing. It will put the price up by a little but probably only about 2% or 3% so that should not really be an issue.”
Specialist area
Paul Molyneux is the managing director of medium-sized, Plymouth-based advisory firm Molyneux Associates. The firm consists of seven advisers, one of whom is a specialist in group risk. It is also part of the Tenet network.
He said group IP and group risk in general was “absolutely” a specialist area. But he added any training that the firm needed would be provided by Tenet, so that was a good support.
Molyneux said: “Financial services is quite diverse and no one can offer everything. It is an area that lots of advisers do not have the skills for and feel frightened to get involved in.
“If advisers do not understand the product then it will be very difficult for them to advise on it. Certainly, one-man bands and smaller firms would be unable to unless they became a specialist firm.”
The firm has seen many providers coming into the market with group IP. Yet the “whole area” is under-advised, Molyneux said. “Group IP is really important. It can be a really good benefit because it falls outside of P11-D so it will not be taxed and there is some real value to be had by companies,” Molyneux stressed.
“There is an awful lot of work involved from an adviser point of view. It is not like providing individual IP. There is a real demand for serious specialist knowledge of the area.”
The firm has been looking very carefully at market changes such as auto-enrolment and government benefit reforms. Molyneux said state benefit changes would promote group IP as it became more important. But with auto-enrolment, the impact was less clear.
Molyneux said: “It could mean corporates thinking twice about group IP if they now have to pay out contributions. The problem is we tend to find when we are speaking to businesses they have never heard of it before.
