The changes to Employment and Support Allowance (ESA) will mean that individuals cannot rely on the State to support them in the event of long-term incapacity, highlights Mercer. As a result, Group Income Protection (GIP) costs are likely to increase as employees rely more heavily on company benefits.
The consultancy is advising those companies that provide GIP to rethink their GIP benefit designs to take account of these changes. Those companies that don’t provide GIP should consider introducing it to provide support and help get incapacitated employees back to work. The changes come on the back of the Welfare Reform Act 2012 which has introduced changes to the ESA, a UK Government State Benefit which replaced incapacity and income support benefits in 2008.
ESA provides financial help to people who are unable to work because of illness or disability. Prior to 30 April 2012, there was no time limit on those receiving ESA or incapacity benefits, providing they were eligible. However, changes have been brought in which impose a 365 day maximum time limit on the payment of contributory ESA to those in the Work Related Activity Group*. This compares to the previous position where this benefit was paid through to State Pension Age.
In order for an individual to claim ESA more than once, he or she will have to satisfy a number of conditions, one of which is accruing a sufficient number of national insurance contributions. A means-tested version can be claimed after contributory ESA has ceased, but once again, only when a number of conditions related to their finances have been satisfied.
John Cowell, Partner in Mercer Marsh Benefits, commented: “Employers are seeing that the State is no longer going to bear the burden of supporting individuals in times of illness or incapacity. The implication of these changes is that the cost for GIP policies that offset State benefits is likely to increase because ESA will be paid less often and at lower amounts.”
Mr Cowell continued: “It would be wise for companies to review the current level of benefits that they provide to their employees in ill health. The employer has a responsibility to ensure that benefit communications and administration remain fit for purpose and no uninsured liabilities are placed on the company as a result of an individual not receiving the level of total replacement income in ill health that they may have been expecting.”
The Welfare Reform Act is yet another piece of legislation which has greatly impacted the group risk sector following on from the Pension Tax Simplification and Employment Equality (Age) regulations in 2006. These saw insurances such as life assurance, income protection and private medical exposed to much higher premiums and, as a result, has driven new product design and benefit provision to the top of the group risk agenda.
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