© International Group Program
Country Panel Presentation: United Kingdom - Life
2016 IGP Regional EMEA Seminar Windsor, May 24-26, 2016
Dave Parker, Underwriting Specialist, Canada Life
Ashley Burton, Technical Liaison Consultant, Canada Life
1
This presentation was exclusively prepared for the attendees of the 2016 IGP Regional EMEA Seminar. None of the contents of this presentation may be copied or disclosed to any other party or used for any other purpose than the one mentioned above without IGP's prior written permission.
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Key Topics
Background Information
Social Security
Private Practice
Taxation Legislation
2
A brief overview of the UK and Canada Life
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Canada Life Group Insurance
Canada Life
• Provide cover for employee risk benefits in the UK.
• Part of Great-West LifeCo, one of North America’s largest Life insurers.
• Canada Life are the largest UK Group Risk Insurer with a 23.3% market share (premium).
UK Group Insurance market
• The UK Group Insurance market is valued at £2.03bn.
• It provides benefits for 11.5m employees across 71,000 schemes.
• Since 2010 the market has grown at an average of 6.4% per year.
Company and Market Information
3
Source: Swiss Re Group Watch survey 2016
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United Kingdom
• Population: 64.6m
• Average (median) age: 40 years
• Life expectancy: 80.5 years
4
Country Info - Demographic
400,000
500,000
600,000
700,000
800,000
900,000
1,000,000
1,100,000
1954 1964 1974 1984 1994 2004 2014
Births Deaths
UK Births and Deaths (1954 - 2014)
0
10
20
30
40
50
60
70
1974 1984 1994 2004 2014 2024 † 2034 † 2039 †
Population aged 0 to 15 (%) Population aged 16 to 64 (%) Population aged 65 and over (%)
UK age distribution (1974 - 2039 projected)
The UK birth rate is volatile. The death rate continues to decline.
Population ageing is projected to continue.
Source: ONS, Births Deaths and Marriages
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United Kingdom
5
Country Info - Economic
Inflation remains low.
Interest rates have been at 0.5% since March 2009.
No increase predicted in the short term.
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
2011
Q1
2011
Q2
2011
Q3
2011
Q4
2012
Q1
2012
Q2
2012
Q3
2012
Q4
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
2014
Q2
2014
Q3
2014
Q4
2015
Q1
2015
Q2
2015
Q3
2015
Q4
2016
Q1
-3
-2
-1
0
1
2
Q12003
Q12004
Q12005
Q12006
Q12007
Q12008
Q12009
Q12010
Q12011
Q12012
Q12013
Q12014
Q12015
Consumer Price Index (Q1 2011 – Q1 2016)
Growth by quarter (Q1 2003 - Q4 2015)
Growth has stabilised since 2013.
Service industries dominate.
Employment Rate (74.1%) and Unemployment Rate (5.2%) have returned to pre-recession levels.
Source: ONS, Economy
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Key Topics
Background Information
Social Security
Private Practice
Taxation Legislation
6
Summary of UK Social Security
Benefits
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Social Security Benefits
• Long term sickness Approximately 9m people in the UK are classed as ‘economically
inactive’. A high proportion of the economic inactivity group are identified as
long term sick. Long term sickness loses the UK economy £14 billion per year in direct
costs.
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Summary of economic inactivity
Source: CBI Absence & Workplace Health Survey 2013
Student
Looking after family / homeTemp sick
Long term sick - 23.4%
Retired
Other
Breakdown of UK economic inactivity (Jan ‘16)
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Social Security Benefits
• Statutory Sick Pay (SSP) Employer must pay the legal minimum SSP of £88.45
per week. Many employers elect to pay above the legal
minimum. From April 2014 the Percentage Threshold Scheme
(PTS), which offered protection to employers with high rates of absence, was withdrawn.
• Some Support for Rehabilitation Services Fit for Work scheme introduced 8th September
2015. Employer led referrals could be constrained. £500 of expenditure recommended by occupational
health tax free.
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Summary for short term absence
4 days to 28 weeks
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Social Security Benefits
• Employment and Support Allowance (ESA) Initial benefit is normally equal to Jobseekers
Allowance. Employees enter Work Capability Assessment
(WCA) phase. The assessment phase lasts for approximately 13
weeks.
• If assessed as ‘limited capacity for work’ Main phase of ESA. Basic rate of £73.10 per
week plus - - ‘Support component’ of £36.20 per week, benefit
payable to State Pension Age or - ‘Work related component’ of £29.05 per week,
benefit payable for a maximum of 365 days (including assessment period).
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Summary for long term absence
With effect from 1st April 2017, the work-related component will be removed.
29 to 41 weeks
42 weeks onwards
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Key Topics
Background Information
Social Security
Private Practice
Taxation Legislation
10
Customary Private Employee
benefits
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Customary Private Employee Benefits
• Group insurers in the UK typically provide cover for 3 main employee benefits – Group Life Assurance (including Death in Service Pension) Group Income Protection Group Critical Illness
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Type of Benefits
-
200,000,000
400,000,000
600,000,000
800,000,000
1,000,000,000
1,200,000,000
1,400,000,000
1,600,000,000
1,800,000,000
2,000,000,000
2,200,000,000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
UK
Gro
up M
arke
t Pr
emiu
m (
£'s)
Life Assurance Income Protection Critical Illness
Source: Swiss Re Group Watch survey 2016
UK Group Insurance market growth
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Customary Private Employee Benefits
• Group Life Assurance (GLA) GLA provides a lump sum to an employee’s dependants in the event of their death.
• Death in Service Pension (DISP) DISP provides a taxable pension to a financial dependent or legal spouse/civil partner.
• Bereavement counselling and probate assistance are usually offered with these products.
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Type of Benefits
1.000
1.050
1.100
1.150
1.200
1.250
2009 2010 2011 2012 2013 2014 2015 0.500
0.600
0.700
0.800
0.900
1.000
1.100
1.200
1.300
1.400
2009 2010 2011 2012 2013 2014 2015
GLA average market rate (per mille of benefit) DISP average market rate (% of benefit)
Link to Defined Benefit pension schemes. Product can be volatile. Limited market appetite. Susceptible to wider economic conditions.
Drive for cheaper premiums during recession. Age profile and market pressure can influence average rate.
Source: Swiss Re Group Watch survey 2016
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Customary Private Employee Benefits
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GLA/DISP benchmarking information from the Canada Life portfolio -
1 times salary 7% 65 15%
2 times salary 20% SPA 10%
3 times salary 15% 70 35%
4 times salary 30% 75 39%
Other 28% Other 1%
Benefit level Retirement Age
20% of salary 4% Nil 9%
25% of salary 20% 3% 4%
33% of salary 10% RPI (max 2.5%) 24%
44% of salary 4% RPI (max 5%) 56%
Other 62% Other 7%
EscalationBenefit level
GLA Product Features DISP Product Features
All industries:
Food manufacturing:
Financial services:
1 times salary 2% 65 17%
2 times salary 7% SPA 13%
3 times salary 10% 70 44%
4 times salary 65% 75 25%
Other 16% Other 1%
Benefit level Retirement Age
20% of salary 0% Nil 19%
25% of salary 10% 3% 0%
33% of salary 7% RPI (max 2.5%) 13%
44% of salary 8% RPI (max 5%) 32%
Other 75% Other 36%
Benefit level Escalation
1 times salary 12% 65 12%
2 times salary 18% SPA 5%
3 times salary 21% 70 42%
4 times salary 22% 75 41%
Other 27% Other 0%
Benefit level Retirement Age
20% of salary 3% Nil 2%
25% of salary 26% 3% 6%
33% of salary 4% RPI (max 2.5%) 35%
44% of salary 0% RPI (max 5%) 56%
Other 67% Other 1%
Benefit level Escalation
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Customary Private Employee Benefits
• Group Income Protection (GIP) GIP provides a guaranteed income for employees unable to work as a
result of illness or injury. Some insurers also offer assistance to employers as part of the policy to
help manage absence more effectively. Employee Assistance Programmes (EAP) and medical support services may
also be provided.
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Type of Benefits
0.900
0.950
1.000
1.050
1.100
1.150
1.200
1.250
2009 2010 2011 2012 2013 2014 2015
GIP average market rate (% of benefit)
Recessionary impact evident between 2009 and 2011.
Increase in popularity of limited payment term contracts. (12% of market in 2010, 18% in 2015)
Product allows leading insurers to influence claim duration and therefore profitability.
Source: Swiss Re Group Watch survey 2016
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Customary Private Employee Benefits
• Early Intervention Leading insurers employ medical professionals to provide specialist support to both
the employer and the employee. Employers are encouraged to notify the insurer of an absence as early as possible . Early intervention can positively influence claim duration.
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Type of Benefits
EIS CLAIMS
0
10
20
30
40
50
60
70
80
90
< 4 weeks 4-10 weeks 10-20 weeks
Ave
rage
leng
th o
f abs
ence
(wee
ks)
26 weeks +20-26 weeks
Date insurer notified of absence
Source: Data is derived from the Canada Life portfolio 2009 to 2014.
0%
5%
10%
15%
20%
25%
30%
Trauma /Injury
Cancer Digestive Cardiac MentalHealth
Musculo-skeletal
Neurological Respiratory Other
Date of notification vs length of absence GIP claims by cause
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Customary Private Employee Benefits
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GIP benchmarking information from the Canada Life portfolio -
All industries:
Food manufacturing:
Financial services:
Income Protection Product Features
50% of salary 30% To cease age 62% 0% 22% 13 weeks 14% 60 2%
50% less State offset 6% 2 years 6% 3% 20% 26 weeks 72% 65 37%
75% of salary 6% 3 years 4% RPI (max 2.5%) 12% 52 weeks 10% SPA 59%
75% less State offset 31% 5 years 28% RPI (max 5%) 39% Other 4% Other 2%
Other 27% Other 0% Other 7%
EscalationLtd Payment Period Retirement AgeBenefit level Deferred Period
50% of salary 24% To cease age 75% 0% 33% 13 weeks 13% 60 1%
50% less State offset 6% 2 years 6% 3% 13% 26 weeks 77% 65 30%
75% of salary 7% 3 years 1% RPI (max 2.5%) 12% 52 weeks 8% SPA 66%
75% less State offset 48% 5 years 18% RPI (max 5%) 36% Other 2% Other 3%
Other 15% Other 0% Other 6%
Benefit level Ltd Payment Period Escalation Deferred Period Retirement Age
50% of salary 25% To cease age 58% 0% 5% 13 weeks 3% 60 0%
50% less State offset 13% 2 years 17% 3% 34% 26 weeks 65% 65 9%
75% of salary 1% 3 years 1% RPI (max 2.5%) 25% 52 weeks 24% SPA 91%
75% less State offset 21% 5 years 24% RPI (max 5%) 31% Other 8% Other 0%
Other 40% Other 0% Other 5%
Benefit level Ltd Payment Period Escalation Deferred Period Retirement Age
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Key Topics
Background Information
Social Security
Private Practice
Taxation Legislation
17
Taxation of benefits and the Lifetime
Allowance
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Taxation
• Our understanding of the legislation and HMRC practice for the taxation of Group policies: Group Life Assurance (GLA)
- The lump sum benefit will be paid to the scheme trustees to enable them to distribute in accordance with the scheme rules. Under trust, the benefit will be tax free.
Death in Service Pension (DISP) - The pension is treated as earned income for tax purposes.
Group Income Protection (GIP) - Benefits paid to the employee as salary are subject to income tax.
• For all products, premiums paid by the employer are usually treated as a business expense.
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Group products
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Taxation
• Lump sum death in service benefits provided through a registered arrangement are tested against the Lifetime Allowance.
• The Lifetime Allowance is a limit on the amount of pension benefit that can be drawn without triggering an additional tax charge –
• 55% on benefits taken as a lump sum • 25% on benefits taken as regular income (such as an annuity)
• The Lifetime Allowance reduced to £1m with effect from April 2016.
• Protection is available for individuals with pension savings in excess of £1m.
• Lump sum benefits insured under ‘Excepted’ GLA policies do not count against the Lifetime Allowance but other charges may apply. Excepted policies grew by 30% during 2015.
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Lifetime Allowance
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Key Topics
Background Information
Social Security
Private Practice
Taxation Legislation
20
UK legislative changes and the impact on employee benefits
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Lifetime allowance £1.25m Up to £40,000 p.a. with tax relief
Up to 25% tax free
Lump sum
Choice on using the remaining Funds. All output is taxed as income in year taken
Mix and
Match
Small pot Lump sum
Flexible draw down
Buy an
annuity
Limited Limited
Flexible draw down only where
Guaranteed Income
>£20,000
Two opportunities to receive a lump sum of
£2,000
1 2 3 1,2,3
Legislation DC Pensions landscape in the UK - 2014
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Lifetime allowance £1m (2016) Up to £40,000 p.a. with tax relief
Up to 25% tax free
Lump sum
Choice on using the remaining Funds. All output is taxed as income in year taken
Mix and
Match
Small pot Lump sum
Flexible draw down
Buy an
annuity
Flexibility
1 2 3 1,2,3
In 2015 all limits were removed.
Fund draw down can be taken within UK
Income Tax bands
In 2015 all previous limits
were removed
Flexibility Guarantee
Greater accessibility to pension savings.
Annuities remain the only way to receive a guaranteed income for life.
Legislation DC Pensions landscape in the UK – 2015 onwards
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Legislation
• The pension system in the UK has been simplified.
• From April 2016: Single tier approach of £155.65 per week. Eligible for full amount if have 35 years of National Insurance contributions. Subject to transitional arrangements
• Prior to April 2016: Complex system. Basic State penson, additional State pension plus range of additions and
credits. Option to use suitable private or occupational pension as well.
• The aim is to provide clarity for retiree’s and to work alongside Automatic Enrolment.
Pension reform – April 2016 onwards
23
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Legislation
• There has been steady decline in Defined Benefit (DB) pension membership in the UK.
• Prior to Automatic Enrolment (AE), the take-up of alternative Defined Contribution (DC) schemes did not offset the reduction in DB headcount.
• The proportion of workplace employees in a DC pension scheme has increased from 16% to 34% since the introduction of AE in 2012.
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Automatic Enrolment (AE)
0
25
50
75
100
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
DB Pension DC Pension Unknown Pension Type
Employee membership of a workplace pension, by pension type (1997 to 2015)
AE introduced
Source: DWP, www.Gov.UK
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Compulsory pension scheme provision.
Eligible workers are automatically enrolled into a compliant scheme.
16 to 21 22 to State Pension Age
State Pension Age to 74
£5,824 or below
£5,824 to £10,000
Over £10,000 Has the right to Opt In
Automatically Enrolled
Has the right to Opt In
Annual Earnings 2015-2016
Age
Has the right to join a pension scheme
Has the right to Opt In
From 01-Oct-12 01-Apr-14 01-Aug-15 01-Jan-16
To 01-Feb-14 01-Apr-15 01-Oct-15 01-Apr-17
Employer size 250 or more employees
50 to 249 employees
30 to 49 employees
Less than 30 employees
Automatic Enrolment Staging Date
Date Minimum Employee Contribution (Gross)
Minimum Employer Conitrbution
Oct-12 1% (tax relief) 1%
Oct-17 3% (tax relief) 2%
Oct-18 5% (tax relief) 3%
Enrolment occurs at the employer’s staging date and every three years thereafter (automatic re-enrolment).
Larger employers affected first.
The employee may choose to opt out.
Employees who do not opt out are required to make regular contributions.
Source: www.Gov.UK
Automatic Enrolment (AE)
Legislation
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0%
5%
10%
15%
20%
25%
Under 30 Age 30 to 49 Age 50+
Opt o
ut ra
te7% 9%
23%
Source: DWP, www.Gov.UK
Legislation
• The Department of Work and Pensions (DWP) initially forecast an AE opt-out rate of 30%. DWP 2013 employer’s survey: 9% average opt-out rate DWP 2014 employer’s survey: 12% average opt-out rate The DWP have cut their opt-out estimate from 30% to 15%.
Automatic Enrolment (AE)
• Reasons for opting out: Affordability Adequate provision already in place Too close to retirement Contribution rate is too low Moving to another employer Concerns over pensions as a long-term
savings vehicle
• A link between employer size and opt-out rate may be established as ‘Small’ and ‘Micro’ employers begin to implement Automatic Enrolment through 2015 / 2016.
Opt out rates by age group
26
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Thank you for your attention! Key Topics We Discussed:
Background Information
Social Security
Private Practice
Taxation Legislation
27
A brief overview of the UK and Canada Life
Summary of UK Social Security
Benefits
Customary Private Employee
benefits
Taxation of benefits and the Lifetime
Allowance
UK legislative changes and the impact on employee benefits
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Contact Info
Dave Parker
Underwriting Specialist
+44 117 916 4381
Ashley Burton
Technical Liaison Consultant
+44 117 916 4064
www.canadalife.co.uk/group
Canada Life Group Insurance Canada Life Group Insurance
www.canadalife.co.uk/group