The increasing demand for HM Treasury to save money means the UK Government is continuing to alter the state provision of benefits, having direct consequences for employers and the benefits they provide to their employees. This continuously changing landscape can make it difficult to keep up; in these updates we keep you informed on changes and what it means to you as an employer.
So what's new?
The UK Government has announced that with effect from 6 April 2017 applicants for Employment and Support Allowance (ESA), who are assessed as unfit for work but are capable of work-related activity, will receive a lower level of State Benefit equivalent to Jobseeker’s Allowance.
Claimants already in the Work-Related Activity Group from before 6 April 2017 will continue to receive a higher level of benefit while they qualify, up to the maximum of one year before State support is means tested.
From April 2017, the Work Related Activity Component will be withdrawn. This means that the value will fall from £5,312 to £3,801 per year.
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- If you do nothing, your employees may look at the benefit promise you made to them and seek the shortfall from you (as they will be expecting the percentage of salary insured and not taking account of the deductions).
- With the majority of Group Income Protection (GIP) schemes linked to ESA & WRAC, review your Group Income Protection Scheme and future proof your benefit design.
What does this mean for you?
A significant number of Group Income Protection (GIP) policies, particularly those that have been in force for several years, pay a percentage of salary less an amount equivalent to ESA and WRAC. The benefit design of including a state offset was suitable 20-30 years ago, but in today’s environment, this needs to be addressed.
People going off sick from September 2016 will be impacted by this change, so now is the time to review your benefit provision.
Tackling the change
There are three simple steps for you to consider to equip your business for this change:
1. Remove the reference to ESA & WRAC offset and replace with a fixed amount offset of £5,300 – equivalent to the current ESA & WRAC benefit level. Although this is a cost neutral position to the benefit, this will confuse employees further as to why an arbitrary figure is used.
2. Change the offset to ESA only. This will likely increase the scheme cost between 2.5%-7.5%. Although this is a simple solution, there could be further legislative changes to these benefits requiring you to review the policy again in the future.
3. Remove the State Benefit offset entirely. This will likely increase the scheme cost between 5%-20% depending on the membership profile.
Outside of these immediate options, a wider review of your overall Health and Wellbeing Strategy would be advisable to ensure these benefits and any changes continue to support your business objectives and goals, rather than making your business needs and processes fit the benefits you offer.
As UK Government legislation is ever-changing, it is wise to remove the link from employee benefits and state provision. By doing this, the impact to your business and your employees is significantly reduced.
We are also encouraging our clients to review their Group Income Protection (GIP) scheme as part of a review of their wider Health and Wellbeing strategy to ensure the provision of this benefit continues to meet their needs, but is also future proofed.
If you would like to discuss any of the contents in this technical update or need advice on how to progress, please get in touch with us at firstname.lastname@example.org.