The A-Day explosion
Things are changing fast in the aftermath of April 6 – the challenge for IFAs is to ensure that their clients are made aware of the new risk landscape, writes Johanna Gornitzki
Angela Faherty: Whatchallenges and opportunitieshas A-Day created for thegroup risk market?
Jamie Barnes: I think theinitial challenge has beento ensure that all our clientsare compliant post 6 Aprilto ensure they will not haveany extended liabilities. Todo so we have undertaken acomplete audit of all our clientschemes. Half the schemes wehave consisted of unapprovedschemes – so that itself hasproved quite a challenge.
Angela Faherty: How long didthe preparations for A-Daytake?
Jamie Barnes: At Gissings, westarted preparing roughly ninemonths ago. However, the lastthree months have been veryhectic, leaving us very little timefor all the things we wanted todo. There has been an awful lotof information coming throughfrom group risk providers and ithas been very good. However,to be honest, when it comesto the actual implementationwe struggled with some of theproviders because they havenot been able to see the woodfor the trees.
Angela Faherty: Apart fromproblems with implementation,have there been any otherchallenges?
Matthew Lawrence: I thinkone challenge coming up toA-Day was that while you haveto make sure you are compliantthere isn’t much else that youcan do.
Simon Derby: I think A-Day haspresented an opportunity toget things in a bit more order.Take a step back and have acloser look at things that needto be changed. At the moment,many advisers still do not knowwhat is going on.
Jamie Barnes: I would agreewith that. If we look ninemonths back, I think themarket had expected hugechanges coming up when we reached A-Day. However, thereality is that it was almostlike a house keeping exercisewith only a few of our clientsmaking tweaks. But I do believethat, looking forward, therewill be huge opportunities forfirms to reinvent themselves.
Kareena Morgans: I think thereare plenty of opportunitiesahead for the group risk sectorand the fact that we have gota blank page now certainlyprovides many long-termprospects.
Sue Sneddon: While there areopportunities, I think one ofthe biggest challenges as aprovider is communicating andtrying to make sure everyoneunderstand the changes.
Angela Faherty: What abouteducation? Are there hugegaps here?
Sue Sneddon: Yes, there arehuge gaps. Some advisers arefully up to speed. However,advisers that are not fully awareof the changes in legislationmay not think A-Day hasanything to do with group risk.And it is our duty to educateadvisers. Luckily, it becameapparent as we came close toA-Day that there was still moretime to work with the grouprisk market since most adviserswere busy with the pensionchanges.
Simon Derby: Backing up yourpoint, I am not surprised thatmany advisers are unaware ofthe link between A-Day andgroup risk because it has never been mentioned at any seminarabout A-Day.
Angela Faherty: How has thisaffected the advice process?
Simon Derby: Clients have onlybeen given partial advice. Thiscould have huge ramifications in particular if they haveenhanced protection becausea group life vehicle may not bethe most suitable option forthem.
Sue Sneddon: One of the bigissues for us providers is toexplain this misunderstandingbecause in the past it was veryseldom that pension advisersever had to worry about whatwas happening on the risk side.But now everything that you doon the risk side could actuallyhave a knock-on effect onadvice given on the pensionsside.
Kareena Morgans: Moreopportunities were openedup by this because it created amore joined-up approach.
Angela Faherty: Are thereany other crossovers withpensions?
Sue Sneddon: I think Simonhas already mentionedenhanced protection – thatis certainly one of the areasthat offer both challenges andopportunities.
Angela Faherty: In what way?
Sue Sneddon: The reason thelifetime allowance is restrictedis that pensions provide taxfreeallowances. If you exceedthat allowance you will have topay an additional tax charge.The Revenue has recognisedthis and has decided to allowclients with big pension potsto protect them, letting themapply for enhanced protection.However, clients with thistype of protection are notallowed to accrue any morebenefits. If they do, they willhave erased their protection. Ifthe employer does not realiseone of their employees hasenhanced protection he couldaccidentally take out a groupscheme, which could countas gaining more benefits.Therefore, the wrong typeof life cover taken out atthe wrong time could havedetrimental effects.
Angela Faherty: Is this a bigconcern?
Jamie Barnes: Yes, we are corporate advisers, so we onlyadvise companies on theirschemes and don’t look atindividual situations. Therefore,individual clients need to takeindependent financial advicebecause we can only go sofar. As corporate advisers wewould say that it may affectyour individual circumstancesbut that is all that we can do.
Matthew Lawrence: We feltthat we knew where we stood.Then all of a sudden, theFinance Bill was published, andthings changed yet again.
Sue Sneddon: The Finance Billwas the most horrific piece oflegislation I have ever tried toanalyse. That said, we havereached a stage now where wehave to all understand exactlywhat will happen. And thatis what our clarifications aretrying to do, but there are still alot of unanswered questions.
Matthew Lawrence: TheFinance Bill also gives animpression of afterthought,revealing the problem of thewhole industry.
Sue Sneddon: Yes, I think whatwe have to try to remember isthat the group risk bit is just avery small part of the overalllegislation. Despite the fact thatwe are screaming and shoutingabout it, this is just one of theissues advisers have to dealwith.
Simon Derby: I think you nailedit on the head there. We onlyplay a small part so it is hardfor us trying to get a messagethrough.
Matthew Lawrence: That is abig challenge.
Angela Faherty: So obviously,things are changing. What canadvisers do?
Matthew Lawrence: Try to givethe best advice that you can.
Sue Sneddon: I think the onusis on communication. It isreally trying to make sure thatyou understand these issues.Because once you get over theinitial hurdle you have all theopportunities there.
Angela Faherty: Are there anyother opportunities? We havetalked about pension adviserslacking knowledge about thechanges to the group riskmarket. But what is lacking?
Matthew Lawrence: Theyhave been so engrossed in thepension changes.
Simon Derby: But also, notall pension offices are lifeinsurance offices.
Sue Sneddon: I think there isnow an increased awareness and it is now a case of tryingto calm people down so theydon’t start to panic. We have toshow them that these are theoptions and you have still got abit of time to sort it.
Angela Faherty: We havetouched upon terminology.What challenges has thisposed?
Jamie Barnes: It is a completelynew language.
Sue Sneddon: Basically, I thinkthis is another challenge andwe need to become fluentin it. However, I am sure thatconsumers will be toiling tounderstand what it means.
Jamie Barnes: For our clientswe have done a series of mailshots trying to drip-feed theminformation. And we aim tocontinue the communication.
Kareena Morgans: Providershave been very good when itcomes to releasing information.
Angela Faherty: Has therebeen any interest from pensionadvisers when it comes togroup risk?
Kareena Morgans: Theyhave been very focused onthe pension side becausethere were things they hadto do to make sure they werecompliant. And that was quitea lot of work to do and that iswhy many of them put grouprisk schemes on the backburner because work was notnecessary.
Simon Derby: I think what hashappened here is that we havereached a lot of clients andtold them about the pensionchanges. The pension partof the operation has beenthe most active one.
Angela Faherty: Apartfrom that, has there beenany other problems?
Jamie Barnes: I think therehas been a mixed bunch ofproblems. We have doneour communication, we had seminars, and we had quitea few people opting forenhanced protection so I thinkthe message is getting throughin parts. So communication isgetting through.
Sue Sneddon: I picked up acall this morning from a clientworrying about tax implications– this shows that even nowpeople are thinking of it.
Angela Faherty: So what otherkey benefits do customerswant?
Sue Sneddon: What is it thatcustomers want to do? Do theywant something simple? Or dothey want something cheap ortax efficient? We really need toknow what they are looking todo. This will decide what theoptions are going to be.
Kareena Morgans: I also thinkwe need to move in line withwhat the pension side is doingand become more active.
Simon Derby: Yes, it could helptightening the rules. But youcannot just change a little bit,there is an awful long way togo yet.
Jamie Barnes: I totally agree.I have been in the healthcaremarket for four years and thegroup risk arena really needs tochange.
Matthew Lawrence: I think itis improving, but there is longway to go yet.
Kareena Morgans: I agree withMatthew.
Jamie Barnes: There is now alot more focus on employmentand employee benefits in themarket.
Matthew Lawrence: Theinformation we now supply isalso much better.
Jamie Barnes: We have seenvery few changes and A-Dayhas not driven clients to makea lot of changes. They will haveto make changes and there is acost involve there. We have gotage discrimination coming upand clients will have to makechanges following this. Whatdo you see happening?
Simon Derby: I think theopportunity that we have derives from the fact that ADayhas created an opportunitywhere you have to have aconversation with clients abouttheir employee benefits. Mostclients still have the desire tomake major changes.
Jamie Barnes: Yes, legislationis driving clients to make achange. But A-Day itself hasnot really driven this change.
Angela Faherty: Looking atthe support you have got fromproviders,could anything morehave been done?
Simon Derby: From myperspective, we would nothave been sufficiently equippedand we wouldn't be wherewe are because of Unum’sinformation or Canada Life’sinformation. To call it woeful isto do disservice to the woeful.I think we all agree that onthe implementation side theyhave done a very good job.However, the information givenhas been very poor.
Jamie Barnes: I have had adifferent experience.
Simon Derby: I know it ispatchy. But I think from theinformation received, we werehugely reassured by ScottishEquitable that they were on topof the game. If we had gonewith another provider it wouldhave been a different story.
Jamie Barnes: I certainly agree,Scottish Equitable has beenfantastic. I do believe thatthe actual implementationacross the board of the markethas been very poor. Theinformation prior to A-Day hasalso been very poor.
Matthew Lawrence: This maybe true, but the danger is ifadvisers rely on providers toomuch. They simply should notlean on providers.
Angela Faherty: Does anyonehave a different view?
Kareena Morgans: No, I agreewith Matthew. I believe thatall providers are trying hard tocommunicate with us and give us the right information. Allthe providers have really triedhard and I really do not want toattack anybody for not havinga go.
Sue Sneddon: I think the bigdifficulty is that there were somany holes that needed to befilled. It is understandable howmisinterpretation could arisebecause of the sheer scale ofchange.
Matthew Lawrence: I thinkthat confusion is still ongoing.
Sue Sneddon: I think, againit depends on the situation.It comes back to what clientsare looking for – the reasonfor them wishing to undergochanges. There are a mix ofpotential things that haveshaken up the group lifemarket. You now have got awhole mix of things to pickfrom to suit the client. Mostproviders now offer differenttypes so that the client can mixand match. It’s a case of horsesfor courses.
Jamie Barnes: Do you thinkwe will see some new playerscoming onto the market?Could Lloyds be a new threat?
Sue Sneddon: I don’tknow. In the past, Lloydsdid unapproved schemes.Although I do not have anydirect dealings with them, myunderstanding is that the costof doing that is unlikely tochange.
Matthew Lawrence: I thinkLloyds market still has a role toplay because they are signinghuge sums to assure.
Angela Faherty: So what doyou think the future will holdfor the market? What lessonshave been learnt?
Jamie Barnes: I think that age discrimination will be a bigthing.
Matthew Lawrence: There isalso a lot of sweep-up workto do.
Simon Derby: A big change inmy view is having implementedall the organisational changesto the schemes. Following this,in October then we have theage discrimination legislationcoming into effect.
Angela Faherty: Bupa andNorwich Union entered themarket last year, so surelythat shows promise? The factthat providers are coming tomarket.
Simon Derby: Bupa came backinto the market in 1999 andhasn't really made a lot of noiseto be honest. Norwich Unionhas done better.
Matthew Lawrence: Becausethey are aggressive on price.
Sue Sneddon: I think withouta doubt that service has to bethe key differentiator goingforward. And that is probablythe biggest challenge forproviders, particularly in theaftermath of A-Day. And I thinkit is one that most providers aredetermined to do somethingabout.
Matthew Lawrence:Something that I think wouldbe very good for the market isif another reinsurer entered.
Jamie Barnes: Yes, I agree.
Angela Faherty: Is that likely tohappen?
Jamie Barnes: At the momentthe market is very restrictedand there is not much moneyfloating around, so reinsurersare unlikely to wish to enter thesector.
Angela Faherty: So does thefuture look promising?
Sue Sneddon: Yes. I thinkA-Day has been challengingand I think there are still a fewissues that need to be resolvedwhen it comes to clarificationand I think the next challengefor employers will be agediscrimination, which is justaround the corner.
Simon Derby: I would like tosee clients in the risk arenavalue the cover more. At themoment it is the bridesmaid tothe PMI bride. It has not beenfeatured as it should have butnow we’re back in the gamewith age discrimination soonto come into effect so I thinkwe can capitalise on that. AndI think employers will value theproposition more.
