Country Panel Presentation: United Kingdom - Life · Country Panel Presentation: United Kingdom - Life 2016 IGP Regional EMEA Seminar Windsor, May 24 -26, 2016 . Dave Parker, Underwriting

© International Group Program

Country Panel Presentation: United Kingdom - Life

2016 IGP Regional EMEA Seminar Windsor, May 24-26, 2016

Dave Parker, Underwriting Specialist, Canada Life

Ashley Burton, Technical Liaison Consultant, Canada Life

1

This presentation was exclusively prepared for the attendees of the 2016 IGP Regional EMEA Seminar. None of the contents of this presentation may be copied or disclosed to any other party or used for any other purpose than the one mentioned above without IGP's prior written permission.


Key Topics

Background Information

Social Security

Private Practice

Taxation Legislation

2

A brief overview of the UK and Canada Life


Canada Life Group Insurance

Canada Life

• Provide cover for employee risk benefits in the UK.

• Part of Great-West LifeCo, one of North America’s largest Life insurers.

• Canada Life are the largest UK Group Risk Insurer with a 23.3% market share (premium).

UK Group Insurance market

• The UK Group Insurance market is valued at £2.03bn.

• It provides benefits for 11.5m employees across 71,000 schemes.

• Since 2010 the market has grown at an average of 6.4% per year.

Company and Market Information

3

Source: Swiss Re Group Watch survey 2016


United Kingdom

• Population: 64.6m

• Average (median) age: 40 years

• Life expectancy: 80.5 years

4

Country Info - Demographic

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

1,100,000

1954 1964 1974 1984 1994 2004 2014

Births Deaths

UK Births and Deaths (1954 - 2014)

0

10

20

30

40

50

60

70

1974 1984 1994 2004 2014 2024 † 2034 † 2039 †

Population aged 0 to 15 (%) Population aged 16 to 64 (%) Population aged 65 and over (%)

UK age distribution (1974 - 2039 projected)

The UK birth rate is volatile. The death rate continues to decline.

Population ageing is projected to continue.

Source: ONS, Births Deaths and Marriages


United Kingdom

5

Country Info - Economic

Inflation remains low.

Interest rates have been at 0.5% since March 2009.

No increase predicted in the short term.

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

2011

Q1

2011

Q2

2011

Q3

2011

Q4

2012

Q1

2012

Q2

2012

Q3

2012

Q4

2013

Q1

2013

Q2

2013

Q3

2013

Q4

2014

Q1

2014

Q2

2014

Q3

2014

Q4

2015

Q1

2015

Q2

2015

Q3

2015

Q4

2016

Q1

-3

-2

-1

0

1

2

Q12003

Q12004

Q12005

Q12006

Q12007

Q12008

Q12009

Q12010

Q12011

Q12012

Q12013

Q12014

Q12015

Consumer Price Index (Q1 2011 – Q1 2016)

Growth by quarter (Q1 2003 - Q4 2015)

Growth has stabilised since 2013.

Service industries dominate.

Employment Rate (74.1%) and Unemployment Rate (5.2%) have returned to pre-recession levels.

Source: ONS, Economy


Key Topics


Social Security

Private Practice


6

Summary of UK Social Security

Benefits


Social Security Benefits

• Long term sickness Approximately 9m people in the UK are classed as ‘economically

inactive’. A high proportion of the economic inactivity group are identified as

long term sick. Long term sickness loses the UK economy £14 billion per year in direct

costs.

7

Summary of economic inactivity

Source: CBI Absence & Workplace Health Survey 2013

Student

Looking after family / homeTemp sick

Long term sick - 23.4%

Retired

Other

Breakdown of UK economic inactivity (Jan ‘16)



• Statutory Sick Pay (SSP) Employer must pay the legal minimum SSP of £88.45

per week. Many employers elect to pay above the legal

minimum. From April 2014 the Percentage Threshold Scheme

(PTS), which offered protection to employers with high rates of absence, was withdrawn.

• Some Support for Rehabilitation Services Fit for Work scheme introduced 8th September

2015. Employer led referrals could be constrained. £500 of expenditure recommended by occupational

health tax free.

8

Summary for short term absence

4 days to 28 weeks



• Employment and Support Allowance (ESA) Initial benefit is normally equal to Jobseekers

Allowance. Employees enter Work Capability Assessment

(WCA) phase. The assessment phase lasts for approximately 13

weeks.

• If assessed as ‘limited capacity for work’ Main phase of ESA. Basic rate of £73.10 per

week plus - - ‘Support component’ of £36.20 per week, benefit

payable to State Pension Age or - ‘Work related component’ of £29.05 per week,

benefit payable for a maximum of 365 days (including assessment period).

9

Summary for long term absence

With effect from 1st April 2017, the work-related component will be removed.

29 to 41 weeks

42 weeks onwards


Key Topics


Social Security

Private Practice


10

Customary Private Employee

benefits


Customary Private Employee Benefits

• Group insurers in the UK typically provide cover for 3 main employee benefits – Group Life Assurance (including Death in Service Pension) Group Income Protection Group Critical Illness

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Type of Benefits

-

200,000,000

400,000,000

600,000,000

800,000,000

1,000,000,000

1,200,000,000

1,400,000,000

1,600,000,000

1,800,000,000

2,000,000,000

2,200,000,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

UK

Gro

up M

arke

t Pr

emiu

m (

£'s)

Life Assurance Income Protection Critical Illness


UK Group Insurance market growth



• Group Life Assurance (GLA) GLA provides a lump sum to an employee’s dependants in the event of their death.

• Death in Service Pension (DISP) DISP provides a taxable pension to a financial dependent or legal spouse/civil partner.

• Bereavement counselling and probate assistance are usually offered with these products.

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Type of Benefits

1.000

1.050

1.100

1.150

1.200

1.250

2009 2010 2011 2012 2013 2014 2015 0.500

0.600

0.700

0.800

0.900

1.000

1.100

1.200

1.300

1.400

2009 2010 2011 2012 2013 2014 2015

GLA average market rate (per mille of benefit) DISP average market rate (% of benefit)

Link to Defined Benefit pension schemes. Product can be volatile. Limited market appetite. Susceptible to wider economic conditions.

Drive for cheaper premiums during recession. Age profile and market pressure can influence average rate.




13

GLA/DISP benchmarking information from the Canada Life portfolio -

1 times salary 7% 65 15%

2 times salary 20% SPA 10%



Other 28% Other 1%

Benefit level Retirement Age

20% of salary 4% Nil 9%

25% of salary 20% 3% 4%

33% of salary 10% RPI (max 2.5%) 24%

44% of salary 4% RPI (max 5%) 56%

Other 62% Other 7%

EscalationBenefit level

GLA Product Features DISP Product Features

All industries:

Food manufacturing:

Financial services:





Other 16% Other 1%



25% of salary 10% 3% 0%

33% of salary 7% RPI (max 2.5%) 13%


Other 75% Other 36%

Benefit level Escalation





Other 27% Other 0%



25% of salary 26% 3% 6%

33% of salary 4% RPI (max 2.5%) 35%


Other 67% Other 1%

Benefit level Escalation



• Group Income Protection (GIP) GIP provides a guaranteed income for employees unable to work as a

result of illness or injury. Some insurers also offer assistance to employers as part of the policy to

help manage absence more effectively. Employee Assistance Programmes (EAP) and medical support services may

also be provided.

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Type of Benefits

0.900

0.950

1.000

1.050

1.100

1.150

1.200

1.250

2009 2010 2011 2012 2013 2014 2015

GIP average market rate (% of benefit)

Recessionary impact evident between 2009 and 2011.

Increase in popularity of limited payment term contracts. (12% of market in 2010, 18% in 2015)

Product allows leading insurers to influence claim duration and therefore profitability.




• Early Intervention Leading insurers employ medical professionals to provide specialist support to both

the employer and the employee. Employers are encouraged to notify the insurer of an absence as early as possible . Early intervention can positively influence claim duration.

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Type of Benefits

EIS CLAIMS

0

10

20

30

40

50

60

70

80

90

< 4 weeks 4-10 weeks 10-20 weeks

Ave

rage

leng

th o

f abs

ence

(wee

ks)

26 weeks +20-26 weeks

Date insurer notified of absence

Source: Data is derived from the Canada Life portfolio 2009 to 2014.

0%

5%

10%

15%

20%

25%

30%

Trauma /Injury

Cancer Digestive Cardiac MentalHealth

Musculo-skeletal

Neurological Respiratory Other

Date of notification vs length of absence GIP claims by cause



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GIP benchmarking information from the Canada Life portfolio -

All industries:

Food manufacturing:

Financial services:

Income Protection Product Features

50% of salary 30% To cease age 62% 0% 22% 13 weeks 14% 60 2%

50% less State offset 6% 2 years 6% 3% 20% 26 weeks 72% 65 37%

75% of salary 6% 3 years 4% RPI (max 2.5%) 12% 52 weeks 10% SPA 59%

75% less State offset 31% 5 years 28% RPI (max 5%) 39% Other 4% Other 2%

Other 27% Other 0% Other 7%

EscalationLtd Payment Period Retirement AgeBenefit level Deferred Period






Benefit level Ltd Payment Period Escalation Deferred Period Retirement Age






Benefit level Ltd Payment Period Escalation Deferred Period Retirement Age


Key Topics


Social Security

Private Practice


17

Taxation of benefits and the Lifetime

Allowance


Taxation

• Our understanding of the legislation and HMRC practice for the taxation of Group policies: Group Life Assurance (GLA)

- The lump sum benefit will be paid to the scheme trustees to enable them to distribute in accordance with the scheme rules. Under trust, the benefit will be tax free.

Death in Service Pension (DISP) - The pension is treated as earned income for tax purposes.

Group Income Protection (GIP) - Benefits paid to the employee as salary are subject to income tax.

• For all products, premiums paid by the employer are usually treated as a business expense.

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Group products


Taxation

• Lump sum death in service benefits provided through a registered arrangement are tested against the Lifetime Allowance.

• The Lifetime Allowance is a limit on the amount of pension benefit that can be drawn without triggering an additional tax charge –

• 55% on benefits taken as a lump sum • 25% on benefits taken as regular income (such as an annuity)

• The Lifetime Allowance reduced to £1m with effect from April 2016.

• Protection is available for individuals with pension savings in excess of £1m.

• Lump sum benefits insured under ‘Excepted’ GLA policies do not count against the Lifetime Allowance but other charges may apply. Excepted policies grew by 30% during 2015.

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Lifetime Allowance


Key Topics


Social Security

Private Practice


20

UK legislative changes and the impact on employee benefits


Lifetime allowance £1.25m Up to £40,000 p.a. with tax relief

Up to 25% tax free

Lump sum

Choice on using the remaining Funds. All output is taxed as income in year taken

Mix and

Match

Small pot Lump sum

Flexible draw down

Buy an

annuity

Limited Limited

Flexible draw down only where

Guaranteed Income

>£20,000

Two opportunities to receive a lump sum of

£2,000

1 2 3 1,2,3

Legislation DC Pensions landscape in the UK - 2014


Lifetime allowance £1m (2016) Up to £40,000 p.a. with tax relief

Up to 25% tax free

Lump sum

Choice on using the remaining Funds. All output is taxed as income in year taken

Mix and

Match

Small pot Lump sum

Flexible draw down

Buy an

annuity

Flexibility

1 2 3 1,2,3

In 2015 all limits were removed.

Fund draw down can be taken within UK

Income Tax bands

In 2015 all previous limits

were removed

Flexibility Guarantee

Greater accessibility to pension savings.

Annuities remain the only way to receive a guaranteed income for life.

Legislation DC Pensions landscape in the UK – 2015 onwards


Legislation

• The pension system in the UK has been simplified.

• From April 2016: Single tier approach of £155.65 per week. Eligible for full amount if have 35 years of National Insurance contributions. Subject to transitional arrangements

• Prior to April 2016: Complex system. Basic State penson, additional State pension plus range of additions and

credits. Option to use suitable private or occupational pension as well.

• The aim is to provide clarity for retiree’s and to work alongside Automatic Enrolment.

Pension reform – April 2016 onwards

23


Legislation

• There has been steady decline in Defined Benefit (DB) pension membership in the UK.

• Prior to Automatic Enrolment (AE), the take-up of alternative Defined Contribution (DC) schemes did not offset the reduction in DB headcount.

• The proportion of workplace employees in a DC pension scheme has increased from 16% to 34% since the introduction of AE in 2012.

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Automatic Enrolment (AE)

0

25

50

75

100

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

DB Pension DC Pension Unknown Pension Type

Employee membership of a workplace pension, by pension type (1997 to 2015)

AE introduced

Source: DWP, www.Gov.UK


Compulsory pension scheme provision.

Eligible workers are automatically enrolled into a compliant scheme.

16 to 21 22 to State Pension Age

State Pension Age to 74

£5,824 or below

£5,824 to £10,000

Over £10,000 Has the right to Opt In

Automatically Enrolled

Has the right to Opt In

Annual Earnings 2015-2016

Age

Has the right to join a pension scheme

Has the right to Opt In

From 01-Oct-12 01-Apr-14 01-Aug-15 01-Jan-16

To 01-Feb-14 01-Apr-15 01-Oct-15 01-Apr-17

Employer size 250 or more employees

50 to 249 employees

30 to 49 employees

Less than 30 employees

Automatic Enrolment Staging Date

Date Minimum Employee Contribution (Gross)

Minimum Employer Conitrbution

Oct-12 1% (tax relief) 1%



Enrolment occurs at the employer’s staging date and every three years thereafter (automatic re-enrolment).

Larger employers affected first.

The employee may choose to opt out.

Employees who do not opt out are required to make regular contributions.

Source: www.Gov.UK


Legislation

25


0%

5%

10%

15%

20%

25%

Under 30 Age 30 to 49 Age 50+

Opt o

ut ra

te7% 9%

23%

Source: DWP, www.Gov.UK

Legislation

• The Department of Work and Pensions (DWP) initially forecast an AE opt-out rate of 30%. DWP 2013 employer’s survey: 9% average opt-out rate DWP 2014 employer’s survey: 12% average opt-out rate The DWP have cut their opt-out estimate from 30% to 15%.


• Reasons for opting out: Affordability Adequate provision already in place Too close to retirement Contribution rate is too low Moving to another employer Concerns over pensions as a long-term

savings vehicle

• A link between employer size and opt-out rate may be established as ‘Small’ and ‘Micro’ employers begin to implement Automatic Enrolment through 2015 / 2016.

Opt out rates by age group

26


Thank you for your attention! Key Topics We Discussed:


Social Security

Private Practice


27

A brief overview of the UK and Canada Life

Summary of UK Social Security

Benefits

Customary Private Employee

benefits

Taxation of benefits and the Lifetime

Allowance

UK legislative changes and the impact on employee benefits


Contact Info

Dave Parker

Underwriting Specialist

+44 117 916 4381

[email protected]

Ashley Burton

Technical Liaison Consultant

+44 117 916 4064

[email protected]

www.canadalife.co.uk/group

Canada Life Group Insurance Canada Life Group Insurance

www.canadalife.co.uk/group

Documents

Country Panel Presentation: United Kingdom - Life · Country Panel Presentation: United Kingdom - Life 2016 IGP Regional EMEA Seminar Windsor, May 24 -26, 2016 . Dave Parker, Underwriting