Corporate clients of IFA firms tend to be of the small to med-ium-sized enterprise kind. In the competitive labour market of today with unemployment figures at the lowest levels seen for years, basic salary may not be enough to attract and retain the workforce that business needs to meet its targets for turnover and profitability.
Big plcs often provide an extensive arrange of fringe benefits, including income protection cover and PMI as well as membership of a pension scheme. Many such arrangements are of the cafeteria type where employees are given a budget, which they can allocate between the various benefits in the way that they think most closely fits their needs.
How can smaller organisations compete? There are cafeteria-style packages targeted at the SME end of the corporate market but, for many small businesses, such mix-and-match arrangements may be too complicated and expensive.
According to our research, their main priorities are simplicity and economy. The nature of the pension provision offered to their employees may provide a clue. It is more likely to take the form of a group personal pension or stakeholder (with employer contributions instead of a mere designation-only) arrangement rather than an occupational scheme.
To help meet the needs of these smaller organisations, the focus should be on cutting out unnecessary complication by parcelling up the benefits to keep the total price down.
A typical package may include income protection, critical-illness cover, hospital cash and two helplines (one for the employer and one for the employees). The employer bears the total cost, which should get tax relief as a business expense.
The benefits offered by the income-protection element are based on a single formula that applies to all employees/members. Like any employer-sponsored group IP scheme, the employer gets any claim payments. It then passes these on to the disabled employee through its payroll system where they are taxed under PAYE.
There is a single deferred period applying to all employees/members, and IP benefits are payable for a maximum overall claim payment period of 24 months.
Statistics reveal that this should be long enough to see the majority of claimants through their period of disability and back to work. Capping claim payments for the small minority of individuals whose illness or injury prevents them from working over the longer term is a highly effective way of keeping premium costs down.
The definition of disability adopted depends largely on the type of work carried out. For those engaged in white-collar duties, it is normally based on the inability to carry out their own occupation. There are more stringent definitions for employees involved in more physically demanding or hazardous work.
The second benefit component of the package is critical-illness cover. Here too, the emphasis is on simplicity and value for premiums paid. There is a single lump sum assured that applies to everyone and payable after a survival period of 14 days. The arrangement covers the core conditions set out in the ABI's revised statement of best practice for critical-illness cover issued in May this year. These include the big three of cancer, heart attack and stroke.
The employer can ask for the full sum assured to be paid to a critically ill employee. Alternatively, it can ask the insurer to allocate part of the lump sum benefit to the business itself, to help it cover the cost of employing a temporary replacement while an individual is away from work – a simple and very basic form of key person insurance on the life of every employee.
Component number three is hospital cash. Again, benefits follow a fixed scale with no element of choice. There are cash payments for such extras as private consultations and physiotherapy as well as for in-patient hospital stays and day-case therapy. The money can be used as a major contribution towards the costs of private treatment or to help employees and their families cope with the expenses (costs of visiting, etc) associated with admission to an NHS establishment.
Finally, our example package includes two phone helpline facilities. The first of these, for use by the employer, is accessible throughout normal working hours.
Selected members of staff, for example, those employed on human resources or health and safety practice issues, can put questions directly to qualified occupational health nursing staff and order factsheet information on topics such as absence management, redundancy and smoking in the workplace.
Occupational health legislation is in a state of perpetual change, with many of the initiatives emanating from Brussels. While big employers can afford to employ specialists in-house or to get external professional advice, many smaller businesses lack the financial resources to do this. They will find the occupational health information helpline an invaluable resource.
The other phone facility is for the employees/members. It is open 24 hours a day. They can use this service to speak to a nurse about any aspect of general heath and well-being, ranging from diet and nutrition to the management of stress.
The insurance elements of the package are costed on a single-premium year-by-year premium basis. There are free cover limits available and, depending on the size of the membership, a single unit rate for all members covered. Premiums depend on factors such as as the age spread of the membership, their sexes, the geographical location of the business and the nature of the trade carried on.
With an IFA to guide them, an SME can use such a scheme to compete more effectively in the low-unemployment labour market of today. There is also the prospect of an additional bonus. According to CBI statistics, sickness absence as a whole costs the average UK company £476 per employee each year. A healthcare insurance package which helps reduce treatment waiting times and offers advice and counselling at the end of a phone line may bring that cost down.