View more on these topics

Old gold

In my last article, I began to outline what I believe will prove to be among the most important developments in financial planning, the implications of which will need to be given a great deal of thought by all financial advisers.

A European ruling means that our Government will be obliged to introduce legislation by 2006 enabling all employees to continue working as long as they wish, subject to their mental and physical ability to continue in their job. I would therefore suggest that financial advisers should be talking urgently to their business clients about the financial planning implications of this legislation.

Having already considered the implications of this move on pensions and employer-sponsored death benefits, this week I would like to look at other group protection products and investment planning.

While in my last column I predicted the closure of an increasing number of group death benefit schemes, I am less certain of the certainty of the demise of group life insurance than I am of employer-sponsored income protection (permanent health insurance) and medical insurance.

You see, while the cost of providing life insurance to older employees is more than younger employees, the cost does not rise that much at the oldest ages as the underwriter knows that the cover will cease at an age below which relatively few people will die.

Even with the removal of mandatory retirement ages, the underwriter might assume that, before dying (without putting too fine a point on it), the older employee will retire through incapacity some months or years earlier.

This line of reasoning does not apply to income protection and medical insurance. An employee continuing in work to, say, 70 or 80 is obviously – and exponentially – more likely to fall ill. The cost, therefore of providing this person with income replacement, or especially private medical treatment, is prohibitive. Advisers to these schemes must take this message on board urgently.

But these are not the only advisers who need to act on this imminent development. Advisers to the employees must be aware, as I have outlined for life insurance, that this loss of employer-sponsored benefit creates a new need for private provision.

I confidently predict that sales of individual PHI and private medical insurance will go through the roof towards the end of this decade and, therefore, the smart IFA firms will position themselves accordingly over the next couple of years, not least by briefly discussing this likely development with appropriate clients.

For all these group risk benefits, I anticipate that, rather than incurring huge extra costs, these benefits will simply be removed. Employers will not be able to restrict benefits to younger employees, this representing the same ageism as the legislation is designed to prevent.

Briefly, on to investment planning. Many clients build portfolios at least partly to subsidise their income after retirement. Now we know that employed clients will not necessarily suffer this drop in earned income at a predetermined age, I would suggest that portfolio planning needs should be revisited.

Moreover, in light of the other issues I have discussed in these articles, I would be very surprised if the coming years do not see a small but significant redistribution of interest and funding from investment to protection as, in the latter category, employer-sponsored benefits are removed.

In summary, this is an issue which you will be hearing more and more about over the coming months. The smart IFA, acting upon this knowledge quickly, stands to gain a great deal of additional kudos and business before everyone else realises the importance of this imminent legislation.

Recommended

Second time around for Britannia International

Britannia International has unveiled the second issue of the split deposit bond, a combination of a high interest account and a guaranteed equity bond.The product is available to new investors with at least £10,000, while the minimum amount for existing customers is £5,000.The high-interest account element pays 5 per cent gross for three years and […]

Compulsion is only way, warns Aussie supremo

Price caps fail to work in a complicated distribution system like the UK and only serve to damage the market according to the architect of the Australian compulsory pension system.Senator Nick Sherry, currently the Australian shadow minister for retirement incomes and savings but was previously the minister in the last Labour government, also says compulsion […]

Govt looks set to go ahead with axing Isa tax breaks

Government plans to scrap the dividend tax breaks on Isas in 2004 seem unlikely to be revised despite continued pressure from the Pep & Isa Managers Association.In a meeting with Treasury Financial Secretary Ruth Kelly last week, Pima chief executive Tony Vine-Lott argued that abolishing the 10 per cent tax break on Isa dividends would […]

Decline and fall of the IFA empire

I find myself looking with trepidation and sadness at the future that lays ahead of us in financial services. A multiplicity of headlines flash past, each signalling a deeper plunge into chaos for consumers and regulated practitioners, independent or not. Providers will be caught up in penalties, fines, increased costs and lower performance, to the […]

Johnson Fleming is a finalist at UK Pensions Awards 2016

The UK Pensions Awards shine the light on excellence and recognise the advisers, providers and investment managers that offer the highest level of innovation, performance and service to occupational pension schemes and their members. This year’s awards looked at advisers and providers across 31 different categories and were rigorously judged by a panel of senior […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com