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Keeping on top of the fast changing group risk world

22 December 2017

It’s a positive step when employers are enlightened enough to provide their employees with “group risk” cover - the blanket term that refers to group life, group income protection and group critical illness.

But setting up one or more of such schemes only constitutes half the battle. They also need to be reviewed regularly.

Ideally, reviews should take place annually but, if not, then certainly at least every two or three years. Unfortunately, however, many schemes never get reviewed at all. Indeed, whenever a group risk scheme that has switched over from another adviser there is a significant chance that there will be something wrong with it.

Legislation relevant to the group risk arena is continually changing. Simply keeping abreast of the knock-on effect of the deluge of new pensions regulations that have come into force during recent years would have been more than enough to keep most HR departments on their toes. But there have also been changes to taxation law and to employment law, with anti-ageism legislation figuring especially prominently.    

Insurers are continually making available new cover tweaks to help employers adapt their schemes to cope with the new rules. So any employer that allows a few years to elapse without a review can end up with a scheme that looks well out of date and, if they allow the situation to carry on for a decade, it can look positively medieval. But, unfortunately, this has been a relatively common occurrence.

It may be hard to believe, but many employers still haven’t registered their group life trusts on the HMRC website, which is something they should have done when the new “A-Day” pensions regulations came into force way back in 2006! Furthermore, some of those registrations that have taken place are incomplete.

Many group risk schemes of all product types are also long overdue changes to their wordings to avoid indirect discrimination towards scheme members, particularly on grounds of sexism or ageism.

Schemes often still run to age 60 or 65, despite the fact that the default retirement age was abolished as long ago as 2011 and that the State Pension Age (SPA) is increasing to 66 and 67 between 2019 and 2028. It may be more appropriate for them to switch to a basis that runs to the greater of age 65 or SPA.

With group income protection schemes there can also be an issue regarding how potential future increases in SPA affect long-term claims that are already underway. The government has already announced plans to bring forward an SPA increase to age 68 to between 2037 and 2039, and there is a definite school of thought that the under 30’s will eventually find themselves faced with an SPA of 70.

Some employers are therefore considering offering a relatively new feature known as “the dynamic SPA,” which will pay out a claim up until any new SPA that emerges once the claim has started.

Group risk wordings also often need to be improved to avoid unclear explanations of benefits and, once again, particular issues tend to arise with regard to income protection in this respect.

A lot of group income protection schemes cover employees on a basis of 75% of salary minus State benefits but employees often fail to appreciate that if they are not actually eligible for State benefits – which most won’t be – then the insurer doesn’t make up the shortfall. 

It will therefore often make a lot more sense to switch to a basis that simply pays out for 75% of salary – regardless of State benefits.

It’s also important to ensure that wordings governing the percentage of salary that is covered under group income protection schemes meet expectations when it comes to those who receive dividends in addition to basic salary. Most scheme rules only cover basic salary. In fact only one insurer currently covers dividends without a special exemption.

If you would like to find out more about how Chase de Vere can help you review your group risk arrangements and about some of the developments in cover that have become available then please do not hesitate to contact us on 0345 300 6256 or complete this simple form and we’ll call you.