Is it too late?
With the legislation now in force for some firms, many advisers may feel they have missed the boat, but the overwhelming message from insurers and EBCs is that that is certainly not the case. “If you look at the staging dates, it is going to be 2014 before companies with less than 500 employees are affected,” says Paul Avis, sales and marketing director at Canada Life Group Insurance. Meanwhile Katharine Moxham (pictured), spokesperson for trade body GRiD, says there are still “plenty of opportunities” to have conversations with employers, but warned that advisers who are not yet talking to their clients about auto-enrolment can be sure that someone else is.
What opportunities are there?
Lee Thurston, director at JLT Benefit Solutions, and a specialist in group risk, says the firm has “absolutely” found that clients are seeing auto-enrolment as an opportunity to look at their holistic benefits offering. “What auto-enrolment is doing for group risk is allowing us to say to clients, ‘let’s take a step back and look at whether your benefits are fit for purpose’,” he says. Helene Gullen, senior manager, channel development, at group risk provider Unum, says brokers who take a “proactive” attitude such as this are very much aligned with the insurer’s key message, which is to review all benefits rather than looking at the pension in isolation. However, Nick Homer, protection propositions manager at Zurich, said the insurer is finding that many employers are putting off a holistic benefits review for the time being. “The priority is on implementing an auto-enrolment solution and some employers may therefore defer a broader review of employee benefits until after their initial auto-enrolment launch,” he says.
What potential issues are there?
GriD’s Moxham says the main issue is that group risk providers are going to be incorporating potentially large tranches of new members and they will have varying approaches on how to deal with this. Logistical issues where providers have varying approaches include: joining conditions for late entrants, accounting periods, and whether premiums are charged for those who opt out.
How will late entrants be treated?
Under normal circumstances, if group risk benefits are linked to a pension scheme, then those joining the pension after they were first eligible (‘late entrants’) would be subject to certain conditions before becoming eligible for the protection benefits, as insurers deem there to be a risk of anti-selection. But with auto-enrolment creating large numbers of late entrants, will there be an amnesty in this circumstance?
Insurers have varying approaches, but the general stance is that those joining as part of auto-enrolment will not be treated as late entrants – Canada Life, Friends Life, Aviva and Zurich are all taking this approach. “We recognise that there is not the risk of selection in this case so we have tried to make it easy for people to join the scheme,” says Catherine Baxter, head of product development at Friends Life.
Where providers may differ, however, is how they treat those who do not satisfy ‘actively at work’ criteria and long-term absentees. Friends Life, for instance, is asking for full details of any long-term absentees, whereas Zurich is merely restricting life cover for long-term absentees to £250,000. Aviva says it will normally waive actively at work requirements for most group life policies with more than 50 lives. “Late entrant criteria is where an intermediary can really show their metal, and equally providers can show some pragmatism,” says JLT’s Thurston.
How will accounts be calculated?
Employees can elect to opt out of the pension scheme and where they do so within one month they will be treated as if they had never joined. For linked group risk schemes, however, this is different, as the member is put on risk immediately until the date of opt out.
This can present some challenges for accounting, particularly because for larger group risk schemes it is usually assumed – for the purposes of accounts – that everything happened in the middle of the year. Will this still be the case?
Canada Life says it will assess the increase in scheme membership three months after the auto-enrolment staging date: if the change is less than 25%, it will reconcile this in its standard accounting process; if it is more, it will split the annual account in order to charge accurately. The provider, like Zurich, says it will not charge for members who leave the scheme during the opt-out window.
Will employers reassess their group risk scheme eligibility?
With employers facing a significant increase in their pension contribution costs, there have been suggestions that companies may look to cut back on their group risk arrangements. The experts say that employers have a number of options: to delink their group risk scheme from their pension, to open it up to all members or to close it. “Companies with linked schemes need to be very aware that if they open up their pension schemes they will be opening up their protection policies too, and of the implications of that,” says Unum’s Gullen. “What I would suggest is moving that eligibility to all staff, so you would not have the issue of all but the few who opt out having the protection cover – would that be fair?”. She adds that some firms may choose to close the protection scheme, but warns there would be costs associated with doing so as the scheme would then have an ageing membership so premiums would go up.