Thinktank Reform is calling on the Conservatives to ditch welfare benefits for the middle classes and instead enrol people of working age into flexible personal protection accounts alongside personal accounts.
Reform says if the Tories win the general election, then the introduction of personal accounts in 2015 is the opportunity to introduce broader personal welfare accounts, where individuals can save for and protect themselves against life shocks such as unemployment, disability, parenthood and retirement.
Under the proposals, when individuals reach working age, they would be free to choose a welfare insurance provider to open their personal welfare account. If no provider is chosen, then they would be allocated one.
As well as making minimum contributions into their welfare account, which would not include income protection or life insurance, individuals would be free to top up their coverage by adding on these products.
Friends Provident chief Trevor Matthews is a high-profile advocate of including life cover in personal accounts and has suggested that the UK should follow Australia’s lead.
Speaking at a Future of Life Assurance conference in May, Matthews said: “I think personal accounts would be a great opportunity for the industry to provide a useful amount of life cover to people. In Australia, it has made a real difference.”
He said 95 per cent of Australians are in the equivalent of personal accounts and have around £50,000 worth of life cover automatically.
The Association of British Insurers’ Nick Kirwan is another fan of the idea of tying protection in with personal accounts.
Speaking to Money Marketing after touring Australia in April, Kirwan said the Australian model where scheme trustees have an obligation to offer everybody at least £50,000 life and total perm- anent disability cover, could work well in the UK.
He said: “I understand there is going to be a formal review of personal accounts in 2018 and I think it would be then when we could potentially introduce this.”
Bright Grey and Scottish Provident head of product development and technical support Ian Smart has mixed thoughts on Reform’s proposals. He says: “It would be a bitter pill for many if they are forced to give up part of their earnings as a way to reduce the burden on the state if there is no corresponding tax break for them.”
He says: “It could have the effect of raising awareness of the need for protection but it would need careful explanation that this was only the base level of cover. You really do need advice on this.”
CBK Colchester principal Peter Chadborn says Reform’s plans could change the way
He says: “It would set a foundation level cover and then it would be up to the individual to build on that.
“IFAs are used to dealing with clients who have no protection, so Reform’s proposals would mean that advisers have to tailor the advice to build on what clients have already got.”
Reform is proposing a range of other radical measures including scrapping the mandatory retirement age altogether and increasing the age of entitlement to the state pension to 68 for men by 2015-16 and to the same age for women by 2017-18.
Other proposals outlined include scrapping child benefits and streamlining child tax credits, scrapping child trust funds, reforming statutory maternity pay and leave, scrapping the winter fuel allowance, charging student loan borrowers market rates and ditching the educational main- tenance allowance.