7 December 2017
Is your firm’s Group Risk policy compliant?
Or are you risking a considerable uninsured liability?
The removal of the default retirement age and the arrival of age discrimination legislation has led to potentially significant consequences for organisations in a number of key areas.
The Group Risk issue
For example, employers face the danger – as the State Pension Age (SPA) rises – of their Group Risk policy (life assurance, income protection and critical illness) falling out of line with the SPA and becoming legally non-compliant.
Although the SPA has already increased to 66, 67 or, for many, 68 (and is likely to increase further) many employers (¾ million by some estimates – Unum) have kept a termination age of 65 (or even 60) on their Group Risk policy – rather than simply resetting it as ’65 or SPA, if later’.
This oversight could expose them not only to possible legal action but also to a considerable uninsured liability for benefits that arise should anything untoward happen after an employee reaches the policy termination age. Admittedly, the full extent of the law here is untested, but potentially the benefit could be payable until the employee’s death.
Put simply, where no insurance is in place and a promised benefit is payable, the employer will be liable. So, it’s not only worth checking your Group Risk policy but also reviewing employment contracts, to ensure the intentions of the business align with the law and the policy.
The options for employers
With Group Risk policies you have two options:
1. You can specify that Group Risk Benefits run to ‘age 65 or SPA, if later’ and then cease. This is an exemption allowed under the law, because otherwise you would fall foul of age regulations forcing you to offer the same benefits to all employees regardless of age, with a virtually open-ended commitment.
2. If you wish, for a modest additional premium – dependent on the age profile of the workforce – you can offer the benefits beyond age 65/SPA. Group risk insurers are flexible in accommodating a range of upper ages (usually 70 to 75), or providing other solutions – such as arranging a limited payment period under the policy. As long as this is applied fairly, it is unlikely to be challenged as discriminatory, and anyway you would be offering more than the legally required minimum.
Paul Mardlin, Centor’s Employee Benefits Director, comments: ‘We strongly encourage employers to plan ahead on this issue. It is far easier to negotiate terms with an insurer in advance than at the time the first employee reaches 65. Improvements are continually being made to Group Risk benefits so that they are fit for purpose in our welfare-reform world. Centor can help employers ensure their benefits design reflects current legislation and meets the changing needs of both their business and their employees.’
For more information, get in touch with:
0207 256 7300