Alan Sparks looks at how advisers can improve their offering to existing clients and expand the market
Looking at products specifically, one would imagine that group life is the simplest to consult and modernise but with looming pension taxation reform and the lifetime allowance reducing to £1m from £1.25m in April 2016, employers will be looking at provision for higher earners.
The popularity of Excepted, as opposed to Registered, schemes is likely to increase.
The traditional approach of using an Excepted policy with a relevant property trust creates a theoretical liability to entry, exit and periodic 10 year charges.
Identifying whether tax should be paid and the amount due where a scheme covers an employee in very poor health is not clearly defined.
With the additional complications, each employer should consider specific legal, taxation and financial advice rather than adopt a blanket, excepted for all, approach.
The advice gap
There is an advice gap here, so whose responsibility is it to consider an Excepted policy? In theory it should be the employer.
But they would not know the personal pension situation of each employee as many will have legacy pensions, some will have opted for fixed/lifetime protection and some will have personal, relevant life policies. So should it be the individual employee's adviser who picks this up?
GIP legislation is already working its way through Parliament. Although held up by the House of Lords, the government still proposes that from April 2017 employment and support allowance (ESA) will be reduced by almost 30% for those in the Work Related Activity Group - a cut of £1,511 per annum to align with job seekers allowance.
The interaction between income protection benefits and universal credit can at best be called complex.
With state benefit amounts reducing, being much harder to qualify for than GIP, and a lack of certainty over the future of state benefits, isn't it about time organisations removed any state deductible and just had a flat, fixed percentage of salary scheme design?
A design which guarantees 50% or 75% of employee income, which is not contingent on the state benefit at all, is easily understood.
Consulting on the options and supporting an employer consultation exercise is just the way quality employee benefits advisers can add value to their clients through improving understanding and modernising.
Despite this opportunity to de-link GIP from state benefits, the jury is out as to whether this will happen.
As part of our review, we still have schemes with a long term state incapacity benefit (LTSIB) deductible - a state benefit which was last available to new claimants in 2008.
There is still a small number of net pay and integrated schemes which, while relevant in the 1990s, can cost more than fixed benefit deductible schemes.
These are fairly straightforward steps that can be used with many clients.
By creating an awareness of needs, and offering a range of simple solutions, we can together make the most and best out of what we have available to us.
This is before we even mention the benefits of support services, such as second medical opinion services, employee assistance programmes or bereavement helplines.
Perhaps a topic for another time.
Alan Sparks is research and development consultant at Canada Life
1. The Pension Regulator July 2015
2015 documents issued by The Pensions Regulator (www.thepensionsregulator.gov.uk/)
www.thepensionsregulator.gov.uk/docs/automatic-enrolment-commentary-analysis-2015.pdf
