From 2017 we can expect a new tax-free childcare scheme, for tuition loans to be extended for students planning to do a second degree in STEM subjects and the government to change the way it funds apprenticeships. A much closer change employers need to be ready for, however, is the reduction of state benefit paid to ill or disabled staff.
Effective from April 2017, employers are already being urged to prepare for the upcoming changes to the state benefit paid to ill or disabled staff – as was announced in the July 2015 Budget. Failing to take action, Aon Employee Benefits has claimed, will result in bosses being exposed to cost increases in terms of group income protection policies.
“Historically, state benefit paid to ill or disabled staff was of the generous kind,” the company said. “Many employers took this into account when designing insured group income protection schemes to ensure there was an incentive to return to work. But in recent years the government has significantly tightened state provision.”
For example, state incapacity benefit was replaced with employment and support allowance (ESA) in 2008. And Aon claimed state benefits were now lower and harder to qualify for due to changes made in the Budget, whereby claimants will lose the “work related activity component of the benefit”. This means only a basic ESA rate will be made available. Former chancellor George Osborne suggested that by cutting £30 a week from ESA it would save £1.4bn over four years and would shake up a system “offering a perverse incentive for people to stay on benefits”.
The announcement isn’t a new one, according to Matthew Lawrence, chief broking officer of health and benefits at Aon, but there are still too many employers who haven’t taken action to review their insured group income protection policy. “They continue to have a benefit design which means that without action the level of insured benefit could increase, with significant proportionate increases for lower paid members,” he said. “Consequently, employers could be subject to significant premium increases at their next rate re-test.
“A small number of insurers are planning on implementing a default benefit basis; for example having a fixed value deductible that is not linked to state benefits, and which should avoid an immediate increase in benefits and costs. But while this is a positive step from a price perspective, it could be more confusing to members if the benefit design has an arbitrary monetary deductible. In addition, while insurers have differing default stances, we have recently seen a number of insurers change stance, with some insurers not applying it consistently i.e. differentiating between existing and new business. As this is an evolving situation it makes it vital that employers review their benefit design to make an informed decision rather than just rolling into their insurer’s default stance.
“The issues do not stop here. We would recommend that wherever possible any reference to state deductibles in the benefit design is removed. This can be done on a cost neutral basis. It could also potentially eliminate any implications of a ruling by the Financial Ombudsman Service, if group income protection claimants who lose entitlement to state benefits, look to their employer (or the insurer paying their Group Income Protection claim) to top up the claim payments to make up for the lost state benefit.”
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