How will the changes announced in the Autumn Statement affect group risk cover?

The Autumn Statement 2016 announced the outcome of the governmentā€™s consultation on restricting the fiscal advantages of salary sacrificeĀ arrangementsĀ to benefits so that they are more equitable and reflect provision that the government specifically wants to encourage. As largely anticipated, the tax and employer national insurance (NI) advantages of salary sacrifice schemes will be removed from April 2017.

Group Risk Developmentā€™s (Gridā€™s) response to the consultation highlighted why excepted group life and group income protection provided as part of salary sacrifice arrangements should also be excluded from the proposed changes. The tax-relieved amounts are small and any change will simply add complexity for providers and scheme members.

Grid put forward the case for the provision of these benefits to be encouraged because they reduce the burden on the state, both through reduced expenditure on state benefits and increased revenue through tax and NI, they provide value to employers and employees alike and they are aligned to the Department of Work and Pensionā€™s (DWPā€™s) goals of supporting people back to work.

Draft legislation has now been published. Remembering that this is still in draft so could be amended, this appears to exempt death-in-service schemes written through a registered pension scheme but excepted group life policies and group income protection do appear to fall within scope of the changes.

It is difficult to see why protecting income would not be a priority for government. If people are unable to work through ill-health or disability, many would not be able to survive financially. Research by The Money Charity, The money statistics, published in June 2016, highlights that around 9.61m (36%) households have no savings while a further 3.47m (13%) have under Ā£1,500. Added to this, the research found that the average total debt per household in the UK was Ā£54,636 in April 2016, so it is clear to see that for many UK households, if there are no earnings throughout a period of illness or disability this could spell financial disaster for them.

On top of this, many people overestimate how much the state would support them and their family in the event of ill-health or disability but there has been a significant tightening in the provision of state sickness benefits over recent years and the benefits have been reduced, in terms of amount and duration, as well as made harder to obtain. The government has announced that from 6 April 2017, new applicants for contributory Employment and Support Allowance (ESA) who are assessed as unfit for work, but capable of work-related activity, will receive a lower level of benefit equivalent to Job Seekerā€™s Allowance. In current terms, this means that new ESA claimants who are placed in the work-related activity group will receive Ā£3,801 instead of Ā£5,312 a year.

Income protection is designed to provide the financial safety net that is clearly needed by so many, so why would the government not want to encourage more employers to offer group income protection benefits?

There is a glimmer of hope on the horizon though. The DWP/Department of Health joint policy unitā€™s Improving lives work: the health and disability green paper, published in October 2016, recognises the role that group income protection can play in supporting employersā€™ health, wellness and attendance programmes and looks to explore how more employers could be encouraged to use it.

It would be great to see some joined-up departmental thinking emerging from this. In the meantime, employers will be seeking greater value from their benefit spend since it may now have to go further.

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More than ever before, employers must work closely with their group risk providers and advisers to ensure they get value for money within their [benefits] programmes. This is not just about how the timeline will impact actual benefits but also about the extra supportive services that come with group risk policies, for example, employee assistance programmes, HR and legal advice, absence management, and so on. Making efficient use of such services is a key differentiator between those employers that optimise their budget, and those that do not.

Katharine Moxham is spokesperson for industry body Group Risk Development (Grid)