What a month for welfare reform and income protection
The world is changing. 70% of long-term absences are amongst employees of small or medium enterprises with 43% being people who work for employers with fewer than 50 staff; 60% of absences are accounted for by women and 57% of absences are amongst people under the age of 50.
And savings for a rainy day are very low. The latest MAS research (September 2016) found over 16 million people have savings under £100. Clearly income protection insurance (IP) and the welfare state are the only show in town for the vast majority of the UK population who are too ill to work.
But IP coverage is small. If you combine IP bought by individuals and employers for their employees there are about 3 million people covered.
By way of comparison, the Sergeant Review of Simple Products noted that a further 23.5 million adults could potentially benefit from Income Protection.
But IP is not just about financial support. Legal and General, has published statistics on those who returned to work in cases where early intervention rehabilitation was provided: 78% of all notified GIP claimants returned to work before the end of the deferred period and 83% did so within the first year of absence.
These figures are replicated for mental health and musculoskeletal claimants. Research shows that there is a £16.80 saving for every £1 spent with rehabilitation on group scheme claimants.
Meanwhile, welfare state provision is being scaled back. Currently, under Universal Credit, owner-occupiers with a mortgage must wait for a qualifying period of 9 months before they are entitled to any support for their mortgage payments.
In addition, no help is available if you (or your partner) have any earned income. This is in contrast with other elements of UC, where the intention is to make working worthwhile.
In the summer budget of 2015, the Government announced that, from April 2018, payments towards mortgage interest will be turned into a loan from the Government.
The loan will have to be repaid when the house is sold or on return to work. This policy remains unchanged following the Autumn Statement. As for generation rent, there are housing benefit restrictions which are set locally based on lower end rental costs.
These were also to have been capped from 2018 but this has now been postponed until 2019. Finally, Universal Credit deducts IP bought by individuals on a £ for £ basis – including any provision for mortgages and rent even if that money were to be paid direct to the creditor.
This is unlike the situation for “earned income” where the taper will be improved from 65p/£ to 63p/£ from next year. A key aim of our report is to encourage a debate on the future of the interaction between IP and welfare benefits.
Green paper vs Autumn Statement
In it they set out their vision for the future. Four of the six elements of the vision complement our report very well. When an individual is in work they should have jobs that actively support and nurture health and wellbeing.
If at risk of long-term sickness absence they should encounter early action to stay in, or return to work. If out of work due to health or disability they should encounter the right support to secure work.
And if an individual is unable to work they should have access to rapid financial support.
Two publications well aligned. What could possibly go wrong?
We found out in the Autumn statement on salary sacrifice. Gym membership and Group income protection (GIP) bought by choice through employers is to be taxed.
Given this decision has been made now – bang in the middle of the Green Paper consultation process – indicates that the old problem of lack of joined up Government is as persistent as ever.
So what next? In my view the focus of discussion needs to focus on IP and what happens at claims stage on interaction with state benefits.
If we can show that change could be made a no cost to Government to encourage, rather than penalise, individuals for supporting themselves I still remain optimistic that we can make progress.
In addition, IP has a much greater chance of rapid growth with changing employment patterns towards more people in small companies that have less interest in GIP and the end of the “job for life” – as it is portable from one job to the next.
We will need to engage with a wide range of stakeholders during the Green Paper consultation period including across Government departments.
As for lobbying for tax relief, the Autumn Statement shows that this is a non-starter.
And worse still, for those who support auto-enrolment for GIP, it is difficult to see the case for an opt-out system for a taxed benefit.
Suddenly the difference between the treatment of pensions and GIP has become much more stark.
Written by Richard Walsh, SAMI Fellow and first published in Cover magazine, November 2016. Also co-author, with Alan Woods, of a report for the CII – “Building Resilient Households – the future of financial provision for those too ill to work”.
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