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04 Jul 2016
by Katharine Moxham

Katharine Moxham: 3 things you need to know about upcoming changes to state sickness benefits

What is happening?

Since 2008, there has been a significant tightening in the provision of state sickness benefits, which have been reduced (in terms of amount and duration) and made harder to obtain.

From 6 April 2017, new applicants for contributory Employment & Support Allowance (ESA) who are assessed as unfit for work, but capable of work-related activity, will receive a lower level of ESA benefit equivalent to Job Seeker's Allowance. In current terms, this means that new ESA claimants who are placed in the work-related activity group will receive £3,801 instead of £5,312 a year.

Why does this matter?

Many group income protection policies have historically been set up with a generic offset for state benefits. This made sense at the time because most people who became long-term sick could reasonably expect to qualify for state incapacity benefit and then to receive it throughout their illness.

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As the state welfare system evolved away from the old-style Incapacity Benefit to ESA, many employers replicated their previous benefit structure as far as they could by continuing to make a generic deduction for ESA in their benefit design.

However, this latest change to the amount of ESA paid could mean that, even if an employee does qualify for ESA in the work-related activity group, the amount they receive will be significantly lower, so their overall post-disability income will be less than expected.

In light of these changes, it makes sense for employers to review their group income protection benefit design to ensure that it still meets their business and workforce’s needs.

What can employers do?

Advisers will be able to guide employers on the choices available to them and put forward benefit design options that will enable them to have an income protection policy that will meet their needs regardless of state provision.

For example, there has been an increase in the number of policies providing a flat percentage of salary – with no deduction for a generic state benefit that may or may not be paid to someone.

Group income protection policies provide much more than a financial benefit if an employee is on long-term sick leave. These products also:

  • help employers to manage absence
  • provide support to employees who are unable to work
  • help employees get back to work
  • keep employees at work, giving them the help they need to make life changes and to deal with the issues that are distracting them
  • manage the health and wellbeing of the workforce and encourage better health behaviours.

This emphasis on prevention and rehabilitation means that employers are now far more engaged with the benefits that their group income protection policy provides – both for them and their employees – and they will want to get the most out of their purchase.

Regular review of strategy, benefit design and what comes with the policy is vital to ensure that this highly-valued benefit continues to meet the needs of the business and reflects changing trends and legislation.

Katharine Moxham is spokesperson for Group Risk Development (GRiD)

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