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IFAs need to rise to the challenge of wider benefits

The burgeoning employee benefits market could provide IFAs with important new business opportunities.

With stakeholder legislation imminent, there is everything to play for.

IFAs now have the ideal opportunity to open up wider employee benefits discussions with their corporate clients as the Government&#39s publicity campaign raises awareness of stakeholder among employers and employees alike.

While the pension issues need to be addressed to avoid falling foul of Opra, independent advisers can go much further and help their clients develop an attractive employee benefits package that suits their budget.

Bottom-line costs are important for any employer in today&#39s competitive market but this needs to be balanced with the client&#39s ability to attract and retain good-qua-lity staff.

Helping a client to devise an employee benefits package that will achieve both these objectives is within reach for those IFAs willing to grasp the opportunities opening up.

Thanks to the new tax regime that is being introduced for stakeholders and which will also apply to group personal pensions from next April, IFAs will have a pressing need to discuss risk options (as well as pensions options) with their clients.

The new regime will affect all new members to existing GPPs and all new GPPs set up from next April and will tot-ally change the tax treat-ment of waiver premiums and benefits.

It will also introduce a new maximum contribution limit for the life cover premiums and it is this new maximum contribution limit that will create additional opportunities for IFAs. The new limit will restrict life cover contributions in any tax year to 10 per cent of the contributions paid towards the GPP pension.

Members already in a GPP before April 6 will continue to be subject to the old limit – 5 per cent of net relevant earnings if that GPP allows for life cover (even if it is not already in place).

If the IFA takes no action, the client will have to deal with two different categories of members in his scheme and life cover for older lives subject to the new tax regime could well be restricted.

Enter risk option number one. Does the IFA have any existing GPP clients who have any employees who are not yet members?

If so, should the IFA rec-ommend they join before April 6 to take advantage of the old tax rules?

This will obviously only pay dividends if the existing GPP already allows for life cover. It is worth IFAs checking this point.

IFAs should also check with any current risk providers they have used to set up pension term insurance separate from the GPP to make sure what is happening to that from next April. But option number one will only solve the life cover issue in the short term and will do nothing to address the needs of future members.

So, should IFAs look to other options?

Option number two takes a different approach, which could also open up a gate-way to the wider employee benefits market and allow IFAs to capitalise on a wealth of opportunities over future years.

The first step on this path is whether the IFA should consider recommending a group life scheme to run alongside the GPP – at least for new members.

This will need a financial commitment from the employer but this need not be a huge cost – 0.5 per cent of payroll will generally be enough to obtain a decent amount of group life cover.

The advantages of this route will obviously depend on the number of potential members, but group rates and group underwriting terms could prove to be the attraction needed to sway the employer&#39s opinion.

Group rates will generally be applied from 30 lives upwards while group underwriting terms will start to kick in at 10 lives – giving some level of cover (increasing with increasing numbers) without medical underwriting.

The important factor to remember is that IFAs need not content themselves with simply addressing future life cover needs.

Employee benefits encompass a wide range of bene-fits, the more traditional (such as income protection cover, critical illness cover and private medical cover) seen to directly benefit employers and employees alike, while sickness and absence management programmes can have a direct impact on operational costs.

Very few employers actually appreciate the real cost of sickness absence on their bottom line, yet recent statistics (CBI, 1999) estimate this at an average of £426 each year for each employee.

Introducing risk covers which help address this issue can help IFAs add value to their clients&#39 businesses and build longer-term client relationships.

Taking employee needs into account in the benefit package design and allowing employees some flexibility of benefit choice can aid staff appreciation of the benefit package and help with recruitment and staff retention.

The flexible menu-based benefits options currently available can put this flexibility within reach of even small to medium-sized businesses – the key market for stakeholder pensions.

Stakeholder presents a multitude of opportunities for IFAs willing to take up the challenge and employee ben-efits is one area where both IFAs and their corporate clients can benefit.


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