How well do you know your employee life insurance schemes? Many employers fall into the trap of assuming their assurance is up to date – however, few know the three components of Group Life Assurance (GLA), its proper technical name, need on-going reviews just the same as other benefits.
Paul Avis, Group Marketing Director at Canada Life, recently revealed to us the specifics of these benefits and discussed Registered lump sum policies, Excepted lump sum policies and Death in Service Pension policies with us.
“Registered group life schemes provide benefits within the Lifetime Allowance,” explains Avis, “whereas Excepted schemes are outside this limitation. For anyone with any kind of fixed or enhanced protection, or affected by the reduction from £1.25m to £1m in April 2016, Excepted schemes make good sense on the face of it.”
But it is not that simple, as Avis adds that implementing an Expected scheme requires specialist tax and legal advice. “2016 saw 29% growth in Excepted scheme premiums, so it is clear from the client demand that a review is needed as many may be unaware of the additional Trustee responsibilities that these scheme bring and the fact that they could be liable to initial and periodic tax charges.” He added. “Removing the death benefit from the £1m Lifetime Allowance seems a simple and sensible decision to make but it is actually more complex than this.”
As interest rates remain low, existing Death in Service Pension policies also need attention. On this benefit, Avis comments, “In addition to interest rates, annuitant life expectancy is increasing and there are a number of ‘closed’ (read: ageing) schemes; this benefit will cost more going forwards. Employers will need to justify the continuation of the benefit or consider alternatives, such as additional lump sum amounts.”
At this moment in time, less than 2,700 employers have DISP schemes, which cover less than 376,000 workers and so for organisations with them this does provide an opportunity. The rise of auto-enrolment, Avis argues, provides a springboard for change, “Some 1.3m organisations are eligible to buy these products, but there were only 43,471 Registered Group Life Assurance schemes at the end of 2016. This implies that only 3% of employers have this benefit or, to put another angle on it, 97% do not.
“If everyone has access to a pension, thanks to auto-enrolment, how will employers retain and recruit the best people in the war for talent? Is GLA the inexpensive, simple way for an employer to differentiate themselves versus their industry competitors? Are employers, especially with DISP schemes, routinely celebrating their existence when they have been bought?”
The argument seems clear: a simple, affordable product that will help retain staff is surely worth considering? Or, as Avis puts it: “There is a genuine need to communicate the value of this benefit as whilst no-one thinks it will happen to them we pay thousands of claims every year to support the survivors of the insured employee.”
