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Employers are key to tackling UK protection gap

Employers should play a greater role in educating workers about financial risks and facilitating access to protection products, according to a new report from think-tank Demos.

The report, supported by Income Protection specialist Unum, found that employers can help to tackle growing financial insecurity in the workforce, yet many are reluctant to engage with employees about financial risks. This is down to a fear of bureaucracy, as well as confusion about the difference between explaining the availability and usefulness of products like Income Protection, and delivering ‘financial advice’ which most employers are not qualified to give.

Demos found that the majority of employees would feel comfortable with their employer helping them to plan for their financial security, and almost half would actively welcome this. But to make this a reality, we must be clear about the role employers can and should play in building financial resilience in the workforce and ensure those who behave responsibly will not be unfairly penalised.

Other recommendations of the report were:

  • The Government should explore using the NEST auto‐enrolment pension scheme to alert workers to wider financial risks. Employees should be reminded in their annual pension statements of the risk of long-term illness and the amount of their current entitlements.
  • The insurance industry should work with other potential partners – such as trade unions or membership organisations like the National Trust and Neighbourhood Watch – to create new points of access to group products.

1 in 10 people will go on long-term sick leave during their working lives, yet Demos found 58% of employees currently underestimate the risk of this happening. Half have less than one month’s salary saved and only 11% have an Income Protection product designed to safeguard our living standards.

Duncan O’Leary, Research Director at the think tank Demos, said: "Awareness of the financial impact of long-term illness, and the sorts of protection that can help guard against this, remains dangerously low. Employers can and should play a vital role in educating staff about the risks and facilitating access to financial protection through workplace benefit schemes – and they should be able to do so without fear of being penalised."

Peter O’Donnell, CEO of Unum, commented: "It makes sense for employers to help staff with their financial planning. Employers are usually more familiar with these kinds of protection products so can better advise staff on the most appropriate plans and providers, whilst workplace policies are typically cheaper and more easily available than individual cover.

"There are clear benefits for businesses too. Income protection provides security of income for staff if they fall ill, but is also one of the few benefits to provide a payback for the employer by not having to pay Occupational Sick Pay and through other indirect cost savings. What’s more, this is a tangible way for employers to show they care for staff which reaps dividends in terms of loyalty and productivity."

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