Taxbriefs Commentary Library

DRA removal opens up protection planning opportunity

Andy Couchman, 12 Dec 2011


 

The abolition of the default retirement age should have a significant impact on protection planning.

Over half (54%) of financial advisers have yet to make any alterations to their planning for clients’ protection and retirement provision according to a poll by Avelo, despite the abolition of the default retirement age (DRA).

The survey of more than 150 Avelo Exchange users in October found that while nearly half of all advisers have now adjusted their clients’ projected retirement age, 44% of protection policies still ran to age 60-64, with 42% ending between age 65 and 69.

Previously, an employer could force an employee to retire when they reached age 65. The net effect of the abolition of DRA is certain to be a gradual increase in the average age of the UK’s workforce, with more people choosing (or effectively being forced) to work beyond their originally planned retirement age. However, many people could find that their income protection runs out while they are still reliant on their working income

Extending the age at which benefits stop is often disproportionately expensive, because health problems tend to increase with age and can accelerate sharply beyond age 60. As a result of the expected rise in cost, many firms are now looking to review their employee benefits package. This does not necessarily mean that employees’ existing benefits will necessarily be stopped or cut, but the trend towards more flexible benefits packages will be given a further boost. They give employees greater choice, but also mean employers can set cost limits, allowing employees to top up if they wish or can afford to. For individuals, some may be able to extend their current cover but others will need longer-term cover to match their new longer working life.

In both cases, the removal of the DRA is an opportunity to help clients understand the changes and to ensure their continuous protection needs are still being met in the best way.

This article appeared in the November 2011 edition of Financial Timesaver, the monthly newsletter for busy financial advisers.

   

 


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Andy Couchman

Managing Director, Bank House Communications Ltd

Andy is one of the UK’s leading commentators on health and protection insurance and is editor of the monthly and annual Protection Reviews. Andy has written over a dozen books and is a regular speaker at industry conferences.

Andy is a Fellow of the Chartered Insurance Institute (FCII), a Chartered Insurance Practitioner and holds the Certificate in Financial Planning. He is also a Fellow of the Royal Society of Arts (FRSA). In 2007, Cover magazine voted him one of the 25 most influential people in protection over the previous decade.

He is managing director of Bank House Communications Limited and co-chairman of Protection Review Limited.

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