Auto-enrolment has helped boost death-in-service market growth, but how else has the new pensions legislation boosted the group risk market?
With the UK’s ageing population benefits packages will need to cater for employees with a potential age-range of 20-80, this holds many challenges
The introduction of pensions auto-enrolment from October 2012 helped to substantially boost the group life market without much effort on the part of insurers.
Around 100,000 employees were enrolled into a group life scheme in 2013 as a result of the legislation, which requires all eligible staff to be enrolled into their workplace pension scheme, according to Swiss Re’s Group watch 2013 report (NB. waiting for confirmation on report) published in April 2013. This is because most employers offer employees life insurance, also known as death-in-service cover, as part of their pension provision.
David Manning, a principal at Mercer Marsh Benefits, believes that auto-enrolment has created a huge opportunity for employers, insurers and intermediaries to talk about the group risk market with employees. He says: “The protection gap has closed a little bit now that more staff have death-in-service benefits, but living insurance still presents a challenge. We have created more risk from an organisational perspective around pension contributions should an employee be off sick.”
Tom , UK employee benefits director at , agrees. “Employees contributing to an established pension scheme each year will see that contribution going out of their pay packet, so they are probably going to want to know more about what it is and what it delivers for them, and that could help to generate more interest generally in what benefits they are being provided with,” he says.
He adds that while death may not be an immediate consideration for younger employees, illness often is.
Employers should therefore educate employees about the lack of safeguard around their pension contributions when they are on long-term sick leave as part of a structured health and programme.
Employers should consider a pensions waiver
Ron , technical manger at Swiss Re, urges employers to consider offering staff a waiver benefit. “This means that if an employee is off sick their pension contributions would be paid for,” he says. “The cost would be fairly modest, perhaps between 2% and 4% of an employee’s pension contribution.”
But Katharine , spokesperson at industry body Group Risk Development, believes that pension fund providers will drive innovation in the group risk space in the future. “I think we will see fund providers trying to differentiate their offering by putting in the option to have a pensions waiver and maybe some life and disability cover,” she says.
This cannot come a moment too soon for group risk consultants who fear that as employers’ and employees’ pensions contributions increase over the next few years, as they are required to do under auto-enrolment laws, some employers will be forced to reduce their group risk benefits spend. Group life cover is a case in point, with some employers having used auto-enrolment as an opportunity to cap or even remove the benefit to reduce costs.
Employers should make increased risk spend work harder
But Mercer March Benefits’ Manning says there are preventative measures that intermediaries and insurers can take to avoid this outcome. “The challenge is for them to start work now to try and find a way to ensure that organisations’ increased spend works harder and fits the needs of employees and employers a bit better,” he says.
At the very least, employers should educate their staff about taking responsibility for their retirement income rather than allowing them to rely on welfare state support. “State support is no longer there and employees need to be educated to understand that,” he says. “They need to take action themselves, and that means arranging adequate protection if something goes wrong, but also doing whatever they can to stop things going wrong in the first place.”