DWP starts income protection auto-enrolment debate
The Department for Work and Pensions has opened the door to introducing auto- enrolment for income protection by calling on the industry to make its case to Government.
Some insurers have been pushing the Government to introduce a form of soft compulsion for employers to offer income protection to staff and help address the so-called protection gap. Only 7% of employers offer income protection to their employees, according to Government figures. Insurers have been calling on the Government to nudge employees towards IP in a similar way to pensions auto-enrolment.
A senior DWP source says the Government is yet to be convinced of the need for auto-enrolment, due to the low take-up of employer protection policies, but is open to debate on the matter. The source says income protection may not be appropriate for the lowest paid as they can rely on the state as a safety net.
He says: “Income protection is a puzzle with only 7% covered, which is a very low figure. It is the kind of level which makes it a minority sport but it doesn’t mean we can’t say; let’s adjust all our systems to account for an increase.
“If we are to see movement on Government involvement then we want to see evidence on it beginning to grow substantially. Why don’t employers want it? Insurance firms and employers need to come up with a coherent story to get us to do it. It’s just not a majority game right now and there is some resistance, I don’t know why but there is.”
The DWP source also questioned the role of regulated financial advisers in helping the low paid as they may not have the qualities to understand the welfare system. He says charities are better placed to help people in financial difficulty.
He says: “The advice issue is interesting. Some of these issues around welfare are really difficult and complicated while some of the quality of financial advisers and their ability to handle this, you have to ask. He adds: “Advice is very difficult and you end up with informal advice from family and friends which is the most trusted area. Getting advice on a regulated basis is a tough one.”