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Call for reduction in disincentive to protect income

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The government should reduce the disincentive to protect your income created by means-testing of sickness benefits says Jack McGarry, chief executive of Unum UK.

Speaking at the ABI’s Building a Resilient Workforce event in London yesterday, at which sickness absence review authors Dame Carol Black and David Frost were presenting their findings, McGarry also said high levels of income protection, that in some cases saw individuals receive 80 per cent of earnings, inflation-protected, up to retirement, created perverse incentives for individuals.

The Frost/Black review rejected calls for incentives for income protection, although it did propose tax breaks for occupational health supplied to employees paying a basic rate of tax.
McGarry said: “Insurance is a hard enough sale as it is, but economically, if you have to say I have to buy £20 to get £10, it becomes an even tougher sale. So that structure that says if you have the foresight to protect yourself you lose benefits that you would otherwise have got had you ignored the risk is a fundamental flaw. It entices people into a trap. It’s the worst for everybody – for the government because the individual ends up living on benefits, for the employee because they have foregone protection and are now living at poverty level and for the economy, as they can’t return to work.

“Demos proposed introducing tax incentives to promote income protection. An alternative is to consider waiving at least a proportion of benefits from means-testing.”

James Freeston, sales and marketing director, Axa PPP Healthcare said: “We welcome this report. It has moved the debate further on and helped us out of some of the political wrangles that we have had about how the private sector can support the state.

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