Ron Wheatcroft, Technical Manager, Swiss Re, comments: “Long-term sickness and absence is quite rightly a big priority for the Government. The insurance sector, and the group risk market in particular, is well placed to support people in returning to work where appropriate.”
Swiss Re proposes several changes to fiscal policy which it believes would simplify employer provision of workplace disability and life insurance and related benefits. These recommendations should lead to greater workforce resilience for employers through improved productivity and lower absenteeism and provide a safety net for the employee and their families.
“Occupational health (OH) and vocational rehabilitation (VR) support is embedded within most group long-term disability policies. This can work very well for employers and, in particular, for smaller firms where the cost of providing the support separately may be beyond their budget. “However, VR should be recognised in tax law alongside OH with robust definitions to ensure that users are directed to the most effective treatment rather than by differences in tax treatment. “A key barrier to take-up of OH services can be a lack of information. In addition to using the tax system to encourage behavioural change, the Government should build on existing initiatives to increase awareness of health services already available. SMEs are not likely to seek OH or VR advice and support unless there is a live issue. Increased take up overall is only likely with substantial marketing to raise awareness and close information gaps.”
Wheatcroft goes on to explain that insurance propositions can be an effective route to wider workplace participation. While the cost of a scheme takes account of several factors, in-force data in Swiss Re's Group Watch 2024 report indicate that cover for a long-term disability insurance benefit payment period of two to five years could cost approximately £20 to £25 per month per employee.
Wheatcroft continued: “Group Watch 2009 showed that, in 2008, 93.3% of all Group Long-Term Disability (GLTD) schemes potentially paid a benefit on continuing disability through to retirement age. Some employers now limit the insured benefits payable, most typically to five years. This had fallen to 61.4% by the end of 2023, with the percentage of schemes providing a maximum five-year benefit increasing from 3.1% to 20.8%. Members may wish to increase the amount or duration of their benefits, yet the tax system makes this unattractive. Employee contributions made by salary sacrifice and benefits payable are both subject to tax. This is not the case where the member contributes from taxed income as HMRC has agreed that the benefit may be paid free of tax.
“Employees should not be penalised by tax on the contribution when a salary sacrifice arrangement is offered. Some employers have chosen to stop offering the option. Doing so can only mean that their employee is less resilient should they become unable to work. Normally, the employee would not have the option to contribute to a workplace scheme by other methods. Employers are generally trusted and able to encourage worker take up of insurance arrangements but may be reluctant to do so and pay for the benefits in some circumstances because of the de minimis limit for payments, currently £50. More employers could be encouraged to support their workers' wellbeing through simple products such as cash plans and critical illness plans if the £50 limit was increased.”
Wheatcroft says this could encourage SMEs in particular. “Many smaller businesses do not run P11D benefits currently and would not wish to take on the administration of doing so”.
Moving to group life cover, Swiss Re asks for an exemption from taxation on discretionary trusts where the sole asset held by the trust is a pure protection life assurance policy. This includes group life policies.
“Such a change would remove a burden on employers and trustees using such policies and the need to check whether there was a potential charge to tax in circumstances where the "gain" is not obvious. The possible charges, on entry, exit and periodically, appear to have been introduced to curtail using trusts inappropriately as a vehicle for investments rather than where just used to facilitate payment on the death of a member. It would reduce employer reporting costs and encourage extending the reach of group life benefits set up by employers, as well as simplify existing schemes coming up to renewal. In turn, it would be particularly helpful in encouraging smaller employers who may otherwise be put off by the prospect of a potential tax liability impacting their business, the amount of which is dependent on circumstances which cannot be planned for and funded in advance.”
The annual cost of checking whether a liability has arisen is now estimated in Swiss Re's Group Watch 2024 report to be £4m with tax revenue generated of no more than £1m each year. Finally, Wheatcroft explains that Swiss Re would like to see the requirement for a common benefit formula for all members of an Excepted Group Life Policy (EGLP) being removed.
He concluded: “The current requirements mean that some employers have needed to write multiple policies, for example where the benefit provided differs according to categories of workers. There is no such restriction when death benefits are provided under pension legislation. Any possible tax avoidance is covered elsewhere in the Eligibility Conditions. Removal would result in a further administrative saving for employers and trustees. Simplifying the EGLP rules would save employers/trustees administration costs and provide a clear alternative to pensions arrangements in providing death benefits.”
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