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    Changes to State Pension age and the protection gap

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    With Brexit stealing the headlines, changes that finally swept away decades of tradition (and inequality) may have gone unnoticed by many businesses and employees. From the 6th December 2018, no UK employees reach State Pension Age (SPA) on their 65th birthday.

    Brexit stealing the headlines

    Where once men traditionally retired at 65 and women at 60, government legislation has both closed the gap between the genders - meaning men and women now have the same SPA - and extended the age to reflect the UK’s ageing population.

    Depending on their birthday, people’s SPA can be from a few months after they turn 65 up to 68 years old.

    Under the current timetable, SPA increases from 67 to 68 between 2044 and 2046. But if the government gets its way in parliament, that increase could be brought forward by seven years – to 2037 and 20391.

    The Office of National Statistics project the number of people over SPA in the UK will grow by a third between 2017 and 2042 – from 12.4 million to 16.9 million1. But whether the government is successful in fast-tracking this change or not, millions of employees already face a potential protection gap.

    What’s it got to do with Group Income Protection?

    Following the Equality Act 2010, the Default Retirement Age (DRA) of 65 was abolished in 20112. But the Act includes an exemption for employers with group risk insurance that covers employees to whichever’s the higher of age 65 or SPA3.

    Previously, most GIP policies paid up to DRA as standard. And according to Unum, 40% of its own GIP policies that only provide cover until an employee turns 65.

    “If the market reflects our figures, there are still currently over 750,000 employees in policies that end at 65,” says Glenn Thompson, Customer Solutions Director at Unum.

    “This means that employers may have an uninsured liability for anyone born after December 1953. If these people were to become permanently incapacitated and claim GIP until they reach the age where the policy ends (the cover cease age), the benefit would also stop, even though they haven’t reached the State Pension Age.”

    This protection gap could mean it falls to the employer to self-fund the claim until the employee either returns to work, dies or reaches their SPA.

    What can employers do?

    To support employees potentially at risk (and through no fault of their own), employers have the option of a dynamic SPA GIP policy. This future-proofs employees by ensuring that their income is protected until they reach State Pension Age – even if that age changes after they’re unable to work because of illness or injury.

    Considering that the SPA timetable is due to be reviewed at least every six years, it’s a subject that is clearly going to evolve. But dynamic SPA is a way to provide stability for employees who may be unaware their cover may not be as complete as they think.

    At the very least, for brokers, it’s a good time to start a conversation with their clients about their employee benefits – particularly about what GIP does and doesn’t cover.

    “We are seeing forward-thinking employers moving their policies to include dynamic SPA and expect this trend to continue,” says Glenn. “We will continue to proactively work with our customers to address any gaps in their protection.”

    Find out more about Unum’s dynamic SPA here.

    Sources:

    1 GOV.UK. (2014) State Pension age timetable

    2 Personnel Today. (2016). Default retirement age: five key trends since it hung up its boots

    3 Legislation.GOV.UK. (2010). Changes to legislation: Equality Act 2010, Schedule 9