I run a small information technology company with a permanent staff of 30.
I have recently set up a stakeholder pension and some death-in-service
benefits with a provider which contacted me direct. Following feedback from
my employees, I am keen to provide a better benefits package, perhaps
including medical insurance. I have an annual budget of around £5,000
and would welcome your suggestions. All the team are under 36 years of age
and seem to be in good health.
Here are my initial thoughts on your problem although I would need to go
into detail to take the process any further.
As you have already put death-in-service and pension provisions in place,
the next level of benefits I would recommend would be income protection,
with the possibility of adding medical insurance at a later date.
Income protection would provide a replacement income for your employees if
they were unable to work through illness or injury for an extended period
The reasons I suggest you opt to consider income protection in preference
to medical insurance are twofold. First, it is of genuine benefit to your
employees and to you. Not only does it give your employees peace of mind
over the effects of long-term sickness but it also protects you from the
open-ended financial commitment of paying an employee who has been unable
to work for some considerable period of time.
The effect on staff retention can be severe if you are seen to be uncaring
and fire an employee if they are becoming a cost to the company through no
fault of their own. You may also be contravening the requirements of the
Disability Discrimination Act.
Second, state provision of long-term incapacity benefits is minimal and
notoriously difficult to obtain. As an employer, you are obliged to pay
statutory sick pay for up to 28 weeks at £62.20 a week. The state will
provide long-term incapacity benefit at a basic £69.75 a week but only
if your employee cannot do “any job”. This payment is taxable. It is,
therefore, highly probable that one of your highly skilled employees will
receive no money after 28 weeks of sickness unless you are willing to pick
up the tab indefinitely.
Private medical insurance cannot solve this problem. It can pay for
treatment but will not pay the electricity bill when it arrives. The
greatest value to your employees is the long-term benefit, not the
A factor you will have to consider is which employees you wish to make
eligible to join the scheme. It might be more sensible initially to allow
access to the scheme after six or 12 months' employment or after promotion
to a certain level to prevent admin problems caused by high staff turnover.
You would then need to decide on a deferred period. This is the period of
time for which an employee must be away from work before benefit payments
begin. The shorter this is, the shorter the time you as an employer pick up
the bill for the long-term sickness benefits. However, shorter periods can
impact substantially against cost. A deferred period of four weeks – the
minimum – will cost you significantly more than a deferred period of a year.
I would suggest you set up the benefit payments to finish at the
retirement date used by your pension scheme and fix an annual increase in
benefits at around 3 per cent to compensate for inflation.
Your company is white collar for all intents and purposes. From an
insurer's perspective, this lessens the risk of long-term sickness and,
more important, reduces the cost to you. This makes the choice of provider
more straightforward as it is not a case of whether they will cover your
workforce but what sort of cover they will provide.
There are a number of providers of group income protection to choose from.
From your perspective, I would recommend a bigger player because of their
ability to ride changes in the market. They would also have a bigger
support system for handling claims and to offer discounts.
Out of the big three – Unum, Royal & Sun Alliance and Swiss Life – I would
currently recommend the Unum group income protection plan because it is
competitively priced and the company has a large team of trained medical
staff to handle claims management. It also has a rehabilitation team to
help employees get back to work, which provides good added value.