Governance
A cost effective benefit |
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| Governance | |
| Written by Caroline Jordan – Head of Voluntary Group Income Protection at Personal Group | |
| Wednesday, 01 July 2009 | |
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Voluntary Group Income Protection - is this the way forward?
Saving money is paramount for Companies who want to survive the recession and in light of this many have had to review their benefits offering. However, benefits remain a highly-valuable recruitment and retention tool, putting many Finance Directors under pressure to re-evaluate how they can offer the same perks but at a much lower cost. A tough challengeSlashing benefits is the quickest way to save money, but will bring with it an employee backlash that will reduce engagement and thus profitability. So is it really worth the risk? An option is to provide the same benefits, but via a channel that removes the employers’ financial burden. Here the obvious choice is flexible benefits where employees have access to a part-funded, part-contributory suite of benefits. However, flex is still expensive so many employers are choosing the ‘voluntary’ route which offers benefits through ‘salary sacrifice’. Here employees can make their own benefits’ selection and the cost burden for Finance Directors is removed. The attractive benefitGroup Income Protection (GIP) is a highly sought after benefit that comes with a significant price tag. As such, many companies don’t offer it or only make it available to the most senior staff. Where GIP was offered to all staff, many are scrutinizing and evaluating this option in these fiscal times. GIP can really give the edge to a benefits package –crucial when recruiting and retaining staff and as such should be considered an essential benefit, not simply a ‘nice to have’. So how can an employer offer this whilst saving money? A cost effective solutionProvided to companies with 250+ employees, VGIP is an employee funded GIP scheme paid for via salary sacrifice. It provides employees with an optional fully insured GIP that is designed to dovetail with the company’s current sick pay. This allows employees to extend the period they will receive their pay during long term periods of incapacity. Positioned as a tax efficient solution, VGIP pays a monthly benefit up to 75% of the qualifying individual’s salary to a maximum of £30,000 per annum for either 2, 3 or 5 years following a pre-determined deferred period. Should an employee be unable to ever return to work, VGIP will pay a lump sum benefit equivalent to 12 months’ benefit once the policy term ends. A clear benefit of VGIP is the cost saving available to the employer. Alongside this employees can access substantially cheaper income protection plans than generally offered on the high street, in some cases between 35 – 40% cheaper. By offering VGIP, employees also benefit from income tax savings on their contribution. For example, a basic rate tax payer whose premium is £25 per month actually only pays £17.25, whereas a higher rate tax payer only pays £14.75. Employers also benefit; using the same example, a Finance Director can look to save £3.20 in NI contributions regardless of which tax band employees are in. By providing employees with a regular, reduced income if they can’t work due to illness or injury, VGIP offers a peace of mind in a troubled times and the confidence they can continue to pay their bills should the worst happen and they cannot work. Should 50% of employees sign up to VGIP all medical underwriting is removed, including that for high earners. Rehabilitation support is also included; helping employees who are absent return to work more quickly than if they had to rely on the NHS alone. This means employers can benefit from an efficient and productive workforce sooner than if there was no voluntary package in place. A win-win for everyoneVGIP not only benefits employees, but also acts as a great tool for employers to recruit, retain and reward staff. By replacing an existing GIP offering with a voluntary scheme, or introducing a new VGIP scheme, employers can provide staff with a full and competitive benefits package whilst fulfilling their duty of employee care and saving money. The result can be a highly engaged workforce which is more loyal, productive and can positively contribute to ongoing business success.
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