Auto-enrolment presents an opportunity to provide life insurance to all people during their working lives, and perhaps also in retirement, by making it universal and affordable.
Group life cover has in the past been a highly valued benefit when offered in addition to pensions. It works better in cases where big companies have persuaded all their employees to take it up. If signing up to life cover is optional, the underwriting process can suffer from selection bias: only people who are ill, or think they will become ill, take it up.
The majority of those who had employer-funded life cover while in work, continued with it in retirement on a self-funded basis.
An opportunity for universal cover
Steve Bee, chief executive of JargonFree Benefits, says auto-enrolment has created an opportunity for cheap universal life cover.
‘The great opportunity afforded by auto-enrolment is that it applies to all employees. So the selection risk being neutralised presents the ideal conditions for keenly priced group rates,’ he says.
‘We have an opportunity here to get valuable life cover to half the working population at a fraction of the cost people would face if they took out individual policies. That’s the real power of having auto-enrolled workplace pensions rather than the state second pension,’ says Bee.
Drawbacks in timing
However, it may be too early to take advantage of this opportunity. Chris Daems, principal of Cervello Financial Planning and director of AE in a Box, says: ‘It’s too early to add additional benefits to auto-enrolment. It would be wrong to even start looking at it before 2017. We need to increase minimum contribution rates before trying to add any more benefits.’
Daems also believes employers should be left to make non-pension workplace benefits a differentiator in the competition for employees.
‘In terms of take-up, what people are logging on [to employee benefit platforms] to look at is not what life cover they can get; they are looking for what benefits they can get that will enhance their day-to-day lives. These are things like money off taxi journeys, food or electrical devices.’