According to research from the Think Tank, Demos, British workers are the worst off in terms of financial protection and as more social welfare transformations take place, it is strongly felt that government incentives should be made available to help address the problem on a wider front.
Even worse is the fact that people earning between £16,000 and £50,000 annually (the squeezed-middle) are the most at risk. This essentially means that people within this income bracket are most at risk to lose their lifestyle or present standard of living in the case of being unable to work due to sickness or disability.
State benefit claims are becoming stricter, but besides that fact these benefits are not sufficient to maintain the same standard of living which many people in the UK have become used to, and this is the point of income protection (IP).
Incentives for private financial protection needed
Unum has endorsed the fact that government incentives should be made available for workers as well as employers who take up private income protection insurance.
Far too many workers are not aware or don’t appreciate the benefits of income protection – more than likely due to lack of education or incentive. Employers also feel that because it is not a hot topic for workers they won’t offer income protection as an employment benefit, so it becomes a vicious circle.
Certainly awareness needs to be raised and a great way to attract attention is pretty obvious – offer employers and employees National Insurance rebates and/or tax benefits. Those workers who are covered by IP are not in need of State support, which could take millions of the welfare bill each year. By offering individual incentives the government could better get the message across.
By offering employers’ tax breaks for providing employee income protection, businesses could be nudged in the right direction for offering this insurance. Employers would also be better prepared to educate employees about the risks involved and the benefits of taking up IP. Also, it is a well know fact that group income protection is financially more beneficial in terms of cost.
Lower State support than in the USA
Think Tank, Demos, compiled an Index of Financial Protection; where England scored 44 out of 100, placing them 8th on a list, which found countries such as the USA scoring 60. Ahead of the UK on the list was also Canada, Germany, France, Netherlands and Scandinavia – all of which score better for both private and government supported income protection in the case of ill health. Private protection scored 26 in the UK, while state support scored 61; 7 points lower than state support in the US.
The Employment and Support Allowance (ESA) was criticized for “penalising” and punishing good financial planning. Savers and homeowners are means tested for having savings of more than £16,000. This also means that the squeezed middle do receive more of a shock if incapacity strikes for whatever reason, especially with no additional income support other than ESA. This is definitely a situation where the private insurance industry can shore up state support.
If British workers have the worst level of income protection compared to their peers in the Organisation of Economic Co-operation and Development (OECD), then surely it is up to the State to address poor employee protection with suitable private sector incentives? This does not only apply to income protection insurance, it also applies private health insurance.