Employers closing Defined Benefit (DB) pension schemes should revisit their sickness provision to avoid a costly ‘protection gap', warns Group Risk Development (GRiD.)
Research from the trade body found over a third (35%) of employers are still considering the issue of how to manage ill-health early retirement provision when closing a DB scheme.
Currently an employer operating a DB scheme may use ill-health early retirement as an option if an employee develops a condition requiring a long period of sick leave.
With many DB schemes closing to new members or for future accrual for existing members, a significant number of employers are unsure about the impact this could have on corporate sickness policy.
According to GRiD's research, almost one in five employers (19%) has claimed their employees will still be able to take enhanced ill health early retirement under the closed pension scheme, while 17% of employers have replicated this provision through an insurance policy.
Meanwhile, over a third (35%) are still unsure about how to manage this issue and a fifth (20%) admit to have overlooked the issue. However, should the scheme close, alternative provision needs to be made if employers are to avoid a costly protection gap.
Katharine Moxham, spokesperson for GRiD (pictured), said: "It is important for employers and employees to remember that DB schemes are not just about a pension - they can have other associated benefits. Closing or revising a DB scheme has clear implications for corporate pension policy but it can also leave a hole in a company's health and sickness provision which shouldn't be ignored.
"So when closing a DB scheme it's vital for employers to revisit their sickness provision to ensure it remains robust enough to protect their business and their employees. Worryingly our study suggests that many employers are unsure how best to do this.
"Implementing a Group Income Protection (GIP) policy where employers offer staff access to insured protection cover if injury or illness prevents them from working for a prolonged period could be an option."
