 By Paul Avis, Mrketing Director at Canada Life Group Insurance
The long-term absence of an employee may do more than cause disruption in the workplace. Employers who dismiss staff on capability grounds may find that they have not met the requirements of the Equality Act 2010 and are liable to pay an Employment Tribunal award. However, Ill-Health Early Retirement provisions - made under pension schemes - may also have unexpected consequences.
The possibility of a return to work may not be considered if the employer does not know how to get the specialist support that this may require. Medium or long-term absence has a financial impact for firms of all sizes - the direct costs of remuneration, lost productivity, and Human Resource (HR) time, together with indirect costs such as the effect on colleagues must all be considered.
The company must provide Statutory Sick Pay (SSP), and many companies will provide more than the minimum amount. However, a significant point arises after 28 weeks of absence, as this is when SSP ceases. Decisions may need to be made and the management of the absence becomes more difficult.
If the employer considers dismissal on grounds of capability, it may not be appropriate to simply “remove” an employee once they have been off work for a period through sickness. To comply with the Equality Act 2010 the employer should make every reasonable effort to support an employee in getting back to work. If an absence and subsequent dismissal is not handled correctly the employee may refer their case to an employment tribunal, which could result in a substantial award1. Getting the right support and guidance is vital. Also, it should not be forgotten that for the employee dismissal might mean reliance on state benefits, providing only the bare minimum of income support.
Many employers will, rightly, wish to support their employees as much as possible. In cases of serious ill health the traditional way of doing this has been to use Ill-Health Early Retirement provisions under a defined benefit pension scheme. However, if such a scheme is available, this approach may have unexpected consequences.
For example, when employees retire they leave employment and therefore are likely to lose access to contractual employee benefits. Private medical insurance and group life benefits may have added value when someone becomes seriously ill, so the retention of these has to be considered. Also, if the worst happens and the individual dies shortly after early retirement, surviving dependents may receive a lower death-in-retirement pension than they would if it had been a death-in-service pension.
Even if the ex-employee qualifies for the contributory Employment Support Allowance (ESA), it will be reduced by half the amount of any pension payment in excess of £85 per week. If the pension is enhanced, there could be an Annual Allowance (AA) tax charge if the value of the pension increase is greater than the AA.
Something else to bear in mind is that early retirement provision is expected to be permanent. Although the tax regime allows for a pension to cease if health significantly improves this is not often done in practice. So, early retirement should not be considered for any conditions where rehabilitation and support may improve the situation over a medium timescale.
If the pension paid is from a defined contribution scheme, Ill-Health Early Retirement has further issues. The pension “pot” available for a young worker with a short length of service would be relatively small, so the amount available to purchase a pension would be unlikely to provide a reasonable income for life if that worker was never able to work again.
Using Group Income Protection (GIP), however, can address some of these problems.
The individual remains an employee, and so will continue to be covered by any employee benefits. If they qualify for the contributory ESA, this will not be reduced by claim payments. Additionally, any pension contributions can be insured under the GIP policy, so that saving for retirement can continue and the pension scheme’s funding remains intact (thereby protecting the income in eventual retirement).
The claim will usually be assessed on the employee’s ability to carry out their own occupation, which is a less onerous test than being able to carry out any occupation. By working with the insurer the employer will gain an understanding of the employee’s situation and, where appropriate, support a rehabilitation plan to get the employee back into work, so helping the employer to meet their obligations under the Equality Act 2010.
Help with rehabilitation is just one of a host of additional benefits offered alongside GIP. Services such as Employee Assistance Programmes, employer legal support and Second Medical Opinions are available.
Finally, it is important to remember that Ill Health Early Retirement and GIP are not mutually exclusive approaches. GIP policies can be designed with payment periods of between 2 and 5 years. It is possible to insure a lump sum to be paid to the employer at the end of the payment period, which could ultimately be used to help fund the capitalised cost of a pension.
1 http://www.covermagazine.co.uk/cover/news/2286591/ba-ruling-confirms-employer-deathinservice-liability-for-unfair-dismissal
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