Legal & General has developed a new insurance product that covers private sector pension schemes for the extra costs they incur when one of their members takes ill health early retirement. |
The costs to the pension scheme can be dramatic: the payment begins straight away rather than when the member reaches pension age, there’s no reduction for early payment and some schemes credit the member with their potential future years of service
Stuart Welch, Group Protection Director says
“Legal & General has been successfully running a similar product in the public sector for four years and we now cover more than 100,000 people.
“That experience gives us confidence in our ability to manage this product, price it accurately and we’re sure there’s a demand for it.
“It’s also been surprising how often this event happens.
“For example, an employer with 200 employees could expect to have one ill health early retirement claim every four years.”
This creates an immediate increase to the pension scheme’s liabilities which feed straight through to the employer’s balance sheet.
A typical claim size can be up to 10 times the employee’s annual salary.
The new product provides an immediate cash lump sum into the pension scheme to cover that extra cost.
This solution is aimed at defined benefit pension schemes with at least 100 active members.
Adrian Boulding, Pensions Strategy Director adds:
“There are fewer employers with these schemes but now is a good time for them to look at this issue. Many are working to reduce and eventually eliminate final salary liabilities on their balance sheet. They may be de-risking the asset side of the scheme, but on the liability side shocks can come along which would knock them off course.
This is an opportunity to insure away one of those shocks and de-risk the liability side, complementing any de-risking on the asset side.”
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