Advisers 'not properly supported' on Universal Credit
ABI seeks IP clarification
Top adviser feels 'let down' by industry bodies and product providers over lack of communication
Moneysworth director, Andrew Wilkinson, has voiced his disapproval that advisers were not informed sooner about potential complications in the way Universal Credit (UC) entitlement might interact with income protection payments.
On Friday we reported that a study by the New Policy Institute, commissioned by the Association of British Insurers (ABI), found that while entitlement to Universal Credit (UC) does not impact on the amount of any individual income protection (IP) payment, it can have significant impact on the net value of the payment, as it can reduce, or in some cases disqualify, UC entitlement.
As a result, the ABI said it is seeking further clarification from the Department of Work & Pensions (DWP) following its assurance last November that life, critical illness and terminal illness insurance payments would not impact UC means-testing.
Andrew Wilkinson said: "To me, it's concerning that product providers and the ABI have known about this for some time but have not seen it fit to draw adviser's to the potential problem. In the meantime they all continue to market the product and encourage advisers to sell it."
He added that it is ultimately the adviser who is liable for mis-selling, not industry bodies or product providers. "As an adviser it doesn't really feel like we are on the same team here," he said. "I think it shows how sometimes advisers are not properly supported by other parts of the market so I think advisers are entitled to feel let down here."
From his personal experience, Wilkinson said it is often surprising how much state benefits are available to those who fall unwell or have become disabled. He also sought further, more concrete, clarification around how critical illness claim payments interact with Universal Credit entitlement.
"I realise that it must be difficult for product providers sometimes when government makes changes to welfare benefits that have a knock-on effect on existing policies but I do not think that justifies their actions - or rather lack of action - in terms of keeping the adviser market up-to-date with these issues and potential risk factors."
‘Joined-up approach'
When approached, the ABI said it was "quite surprised" by Wilkinson's comments, given the attention the issue has received by the industry body and wider industry in recent times.
"We have proactively engaged various adviser bodies such as Income Protection Task Force (IPTF) and the Protection Distributor's Group (PDG), and we continue to engage with all parts of the industry on this issue," said Roshani Hewa, assistant director, head of health and protection at the ABI.
"The ABI has recently commissioned research with the New Policy Institute to highlight the lack of clarity from the government around the interaction between UC and individual IP. The ABI recently held a roundtable with DWP and the industry which also included advisers to ensure the DWP were aware of how IP is sold in the industry, and to ensure we have a joined-up industry approach."
‘Safety net'
In a media statement following the ABI announcement last week, Justin Harper, head of protection marketing at LV=, said: "Income protection offers financial support for individuals who want to protect themselves and loved ones against the severe impacts of income shocks. Greater private provision - and IP take up - help encourage and improve household financial resilience and reduce the demand on an already stretched and struggling welfare system.
"IP offers a far superior, more substantial and tailored option, for those who can afford it. However there are conflicts between IP and UC and its treatment of IP as unearned income (with a £ for £ deduction).
"The disincentive of the £ for £ deduction is clear, but it's also wrapped in confusion. No-one knows if and when they will make an IP claim, the nature of that claim or what their circumstances will be at that time, or indeed what UC rules will be in place. This may or may not happen many years after they've taken out their policy. Nobody wants to claim on the state, but they may need to, so this potential reduction in the net value of IP presents challenges for providers and advisers," he continued.
"We're encouraged that government departments are listening to the industry's concerns and hope we can find greater clarity and find ways to reduce the disincentive threat. In the meantime, IP remains a much needed and valuable safety net for many clients. The UC/IP interaction is a distraction that needs addressing but we should not let it compromise our greater purpose. We live in a regulated world, so we need to continue signposting our clients and policyholders to the risk of a deduction to state benefits, but the case for taking out IP is far stronger, clearer and more certain."
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