Throughout my time in the Employee Benefits industry, I have been asked to carry out countless reviews on the structure of some Group Risk policies (typically Group Life Assurance and Group Income Protection) with a view to providing feedback on potential issues or risks that may exist for the Employer. On the whole, I can say that over 60-70% of these reviews confirmed the job the employer or their advisers are doing is good and only very small tweaks or changes to policy structures and/or wordings are recommended.
However, some reviews have highlighted gaping holes in cover and as such huge potential liabilities sitting with the employer, without them knowing! An example of such areas of risk are:
Removal of the default retirement age
In 2011, it became unlawful for an employee to ‘retire’ a member of staff based on age alone. Gone are the days where a member of staff reaches age 65, receives a carriage clock from their employer and spends the rest of their days playing golf or bridge. Employees tend to look for a better work/life balance and therefore may choose to reduce hours to facilitate these wishes whilst remaining employed, as they want to remain occupied and keep their mind busy. This is certainly the case for my 70-year-old Mum.
Even now we review many Group Life Assurance (Death In Service) policies that still cease at age 65 which based on current trends is not suitable as many employees continue to work into their late 60’s or early 70’s. It is highly likely that a company’s employee life assurance benefit is referred to in an employment contract or staff handbook and therefore if an employee were to pass away post age 65 then without the existing policy having been amended to reflect the aforementioned change, the employer could be looking at a potentially crippling liability.
The good news is that an Employer does not have to insure an employee indefinitely, but they should ensure that their policy (and subsequently reflected in any contract/handbook) are amended to cease at for example, ‘State Pension Age (SPA) or age 70, whichever is the latter’.
How does your policy and employee documentation read?
Group Life Trust set up
Although many employers have Group Life Assurance (Death in Service) policies, it is rare they are ever called upon. That doesn’t mean to say an employer shouldn’t consider what would happen in the event of a claim and have a process in place to ensure it can receive the benefits and pay on to the deceased employee’s loved ones in a timely manner. The last thing you would want is to provide such a valuable benefit then see delays in this being paid which results in more anguish and upset for the deceased’s beneficiaries.
Many employers shy away from or simply neglect to consider their responsibilities in this area, as understandably, they do not want to tempt fate, but they are also probably unaware of the information and facilities required in order for a claim to be processed quickly and efficiently by an insurer. The following questions may test your ‘readiness’ for such a claim:
*Is your scheme in a Master Trust or do you own our own trust?
*Where is your trust deed?
*Who are your scheme’s trustees?
*Who is your scheme administrator?
*Do you have a trustee bank account ? If not, do you know what the bank would require to set one up and how long this could take?
*Is your scheme registered with HRMC?
*Do you have up to date nomination forms on file from all the employee and are these readily to hand?
These are just two common areas of weakness we consistently see but there are many more. We would be more than happy to review your benefit schemes to ensure the structure and accompanying procedures are all in order, taking any concern in this area away from you. For further information on our scheme suitability review please contact the team on 01883 332260.
Richard is one of our Strategic Benefit Consultants.