Working later in life? An ageing workforce should be positive for the income protection market, says Joanne Hindle
The debate about the State retirement age has been raging for many years, and we are all aware of the significant demands placed on the current workforce in order to pay for those already retired. With an ageing population in the UK, this issue is set to intensify.
The pensions gap is estimated to be on such a scale that £27bn is likely to be a conservative forecast. With recent estimates of company pension schemes suffering from a £55bn shortfall, this backs up proposals to raise the state retirement age to 70, for both men and women.
According to the 2001 Census, the population has aged considerably over the past 50 years. While the proportion of the population under 16 has fallen from 24% to 20%, at the other end of the scale, those aged over 60 has grown from 16% to 21%. The ageing population is also evidenced by those aged 85 and above, who in 1951 made up just 0.4% of the population, to be increasing five-fold to today's figure of almost 2%, some 1.1 million people.
The number of people over the current State pension age of 65 for men and 60 for women, is expected to increase by 11% between 2000 and 2011 and those aged between 45 and 59 by 25%. The corollary to this is that many opportunities will be created for IFAs to advise on their needs. However, it is not only IFAs selling retirement services who will benefit. There will be an increasing demand by employers to provide products and services that assist in keeping their workforce healthy. With this in mind, one of the obvious growth opportunities is the provision of group income protection (IP) policies.
There are clearly a number of challenges, but also significant opportunities for the IP market. The UK's workforce has been ageing for many years and an increased retirement age will present new issues that will require careful consideration. However, despite all the talk of raising premiums to cover the cost of longer-term policies, not to mention the additional five or 10 years when an individual is potentially at their most vulnerable, the industry has to review these changes in a positive light.
A changing workforce
It is a fact of life that the probability of becoming seriously ill or indeed disabled increases with age and employers need to address this. The employer market will offer business potential as companies seek to ensure they have a healthy workforce prior to retirement. Indeed, we predict many companies will take a far more paternal interest up to retirement, to ensure they keep their workforce healthy.
It is hardly surprising, therefore, that we, at UnumProvident, have seen a significant rise in sales of group IP policies, as employers develop a more proactive approach to managing sickness absence and return to work programmes.
Unless attitudes towards work and reasonable adjustments change, an ageing population may lead to an increased probability of work-related disability. To help avoid this, we need to create an environment whereby older individuals can more easily work part-time or where employers are easily able to make necessary adjustments.
Many employers and indeed some advisers presently view group IP simply as a way to offset the cost of paying a long-term absentee. However, as the demands of the workforce change, IP policies will need to adapt to the changing requirements of employees, employers and their advisers. There will need to be a greater emphasis on the provision of such things as absence and rehabilitation management in order to help sick, temporarily disabled or even permanently disabled staff to return to work as quickly and as enthusiastically as possible. Employers will need to keep more accurate records of staff absenteeism.
Group IP providers must look to ensure their absentee management and rehabilitation propositions are strong and, along with IFAs, focus on this more when promoting the product.
However, employers are wrong to paint a picture of doom and gloom around employing older people as they can have an extremely positive impact. For example, DIY retailer B&Q opened a store staffed by people aged over 50 and saw profits rise, staff turnover fall and an improvement in customer service.
Furthermore, four out of five people believe that employing older people is good for a company's image with 75% believing they tend to be more honest in the advice they offer. Success for employers is increasingly coming down to finding an able and willing workforce, but one that remains healthy and in work. Group IP must be positioned as having a key role to play here.
There is clearly a need to help employers in this area as we estimate the cost of sickness absence in the workplace is over £20bn a year and yet many employers have a poor understanding of how it affects them or even how to calculate it. For example, 12% do not include occupational sick pay when collecting information concerning costs related to sickness absence and 39% ignore additional overtime expenses. Is it little wonder that the cost of sickness absence can be as high as 16% of an employer's salary bill? Many might argue that an increase in retirement age might contribute to this figure rising, however, it is worth noting there is a much higher incidence of casual sickness by younger staff.
Road to recovery
Many employers do not realise that this problem could be tackled through a strong group IP policy but they should be warned that not all policies are the same. Generally speaking, IFAs should be encouraging them to choose ones with short deferment periods or which provide help and advice in the time before a claim which insurers can assess quickly when or whether an employee can return to work and establish a tailored rehabilitation programme to help them on the road to recovery.
There are many benefits of a comprehensive group IP plan. In addition to covering staff sickness pay, it should also provide advice from experts regarding rehabilitating staff after disability and guidance on legal matters such as the Disability Discrimination Act. In a society that is becoming increasingly litigious, this can be invaluable.
Furthermore, with the State being forced to withdraw its 'nanny' role, receiving insurance benefits from an employer should you be unable to work because of a serious illness is becoming an increasingly attractive proposition for staff and as a way of attracting new people.
The increased State retirement age of 70 for men and women could be enshrined in both European and domestic law by 2006. The industry has much to do in terms of re-focusing IP products and promoting an agenda of rehabilitation as well as assisting where possible in educating employers and advisers of the longer-term benefits of available products. The ageing population and the increasing pressure placed on employers to reduce costs and improve efficiency, means the prospects for group IP look good. It is up to product providers to make sure they have strong sickness absence and rehabilitation services and that they and IFAs place greater focus on this when promoting the product.
Joanne Hindle is corporate services director at UnumProvident
COVER notes
• As the workforce is set to age, companies need to ensure their staff remain healthy and productive.
• With an increased probability of work-related disability, IP providers need to focus on rehabilitation and absence management when promoting their products.
• There are opportunities for the IP market to position itself as encouraging companies to employ older staff.
