26 February 2020

Time to spring clean employee benefits, or employees are at risk of missing out, and businesses can be left financially liable

With spring tantalisingly close, organisations need to consider dusting off employee benefits packages to check they’re still fit for purpose, and that their staff are adequately protected. In Towergate Health & Protection’s experience, some employee benefits packages are woefully under-reviewed and therefore not utilised, valued or effective. More worryingly, it can leave employees unsupported in times of need, and businesses can be left vulnerable if benefits are no longer compliant.

Towergate Health & Protection has identified some key benefits that businesses need to have at the top of their list for a spring clean.

Group life assurance

Appropriate cover levels for group life assurance (designed to pay out on death of an employee) may well be under-insured if the employer hasn’t paid attention to the rules of their insurance contract.

High earners in a company can be particularly vulnerable if important details haven’t been included correctly when arranging their life assurance cover. Life assurance for such groups is often subject to specialist insurance terms, and companies can fall foul if the insurer’s non-medical limit isn’t set high enough for them. Life assurance will often pay out a multiple of salary, but if the cover amount is above the insurer’s limit and appropriate action isn’t taken then a high earner can find themselves insured for less than the amount promised by their employer. If this isn’t rectified before a claim is made, the company may be liable to make up the shortfall, which could easily be hundreds of thousands of pounds.

David Williams, Head of Group Risk for Towergate Health & Protection says, ‘Group life assurance is one of the most popular benefits to offer, with nearly 10 million people in the UK covered1 but it must be carefully assessed at least annually. Otherwise, what should be a relatively inexpensive benefit to offer, can end up costing companies dearly.’

It isn’t just high earners that can be affected if a scheme isn’t set up properly, all employees can be. The removal of the default retirement age a few years ago doesn’t just affect pensions, it affects other employee benefits too, including group life policies. Some group life schemes will be set up to cover people up to their State Pension Age but companies regularly have employees working past that age. Companies need to be clear what benefits their staff remain entitled to and ensure their insurance policies match their HR policies. Some companies may define an age limit for the life assurance to pay out, but the reasons might not hold up if challenged by an employee or their dependants. Many people will expect – and be relying on – a lump sum pay out from a partner’s employer if their partner died, and that can be devastating if it doesn’t materialise, with the company potentially faced with a significant, and unexpected liability.

Group income protection

Group income protection is designed to support employees if they’re unable to work through ill-health or injury; support includes prevention, early intervention and financial.

Williams continued, ‘The most common lost opportunity we see with group income protection schemes is when they’re not actively engaged with. There are numerous health and wellbeing benefits that can be had for the whole workforce, this isn’t just about financial support for the long-term absent.’

Many group income protection schemes can be put in place and then forgotten until an employee is long-term absent and a financial claim is needed to support the employee. But employers, and staff, miss out on all the extra benefits they could be utilising. Many group income protection schemes include extra support whether or not an employee is absent, including access to mental health support, EAPs, rehabilitation, and access to specialist health advisers.

Williams said, ‘Within group income protection there is often a wealth of support to help employees either to stop them going absent, or to help them return to work more quickly. Just looking at the scheme as something to pay out for the long-term absent is missing the point.’

It’s also important that all schemes are reviewed to ensure they’re set up in a way that keeps pace with changes in State benefits. Some group income protection policies still make reference to outdated State incapacity benefits, for instance deducting any state benefits from what they’ll pay an absent employee. But the benefits system has had a huge overhaul and it’s now much harder to determine what State benefits an absent employee may be entitled to. Employers can easily miscalculate this, and this can be to the detriment of their staff.

Williams concludes, ‘Life assurance and income protection are some of the most valued employee benefits, but their fitness for purpose must be regularly reviewed.

‘With spring around the corner, now is a good time for employers to air their benefits packages and ensure they’re compliant, add value and are utilised. Doing so can help to safeguard their staff and their business.’

1. https://employeebenefits.co.uk/12-9-million-group-risk-2018/