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Employee Benefits Advice for Corporate Clients

Insurance Premium Tax: Our Guide


The public’s and business world’s reception to the Government’s July Budget plateaued across a ‘commerce-weighted, yet public-sector light’ focus, which to the UK has meant yet more divided opinion about the UK’s economic direction.

One area that Sanlam would like to expand upon within this briefing is the Chancellor’s proposal for Insurance Premium Tax (IPT) to increase in the UK, from its current level of 6%, to 9.5% from 1st November 2015.

IPT is an indirect tax that is levied on a range of different general insurances and was introduced in the UK in 1993, as the Conservative Government at that time felt that tax revenues from the insurance industry were disproportionate against other business sectors, given their exemption from VAT.

Sanlam Wealth Planning actively advises upon a wide range of different occupational employee benefits and individual policies where IPT has an impact. The various life and protection plans that we recommend have always been considered as exempt, but it is healthcare insurance where IPT occupies a significant cost factor.

Historically two rates of IPT have been payable – the standard 6% rate, and the higher 20% rate applicable to travel insurance, mechanical/electrical appliances insurance and some vehicle insurances. There is no change planned to the higher rate, but it is Private Medical Insurance (PMI), Health-Cash Plans, and Dental Insurance where the November increase to the lower rate will hit hardest.

The UK PMI market have to-date been guarded in clarifying their next steps, but the majority of providers have now confirmed their respective pre-1st November underlying pricing structure reviews. Sanlam’s discussions with key stakeholders at each of the top providers, such as Bupa, Vitality and Aviva, have led us to understand that the market’s pricing re-structures have been more than just a +3.5% tick box exercise. Each of the providers’ IPT loadings have needed to consider an inflation and future-proofed pricing analysis. Whatever the position is with our clients on a case-by-case basis, Sanlam are committed to working closely with each of our partners to ensure suitable time is given to forward planning and budgeting, to identify where a business’ employee benefits spend might be for 2016.

Where appropriate for larger businesses with medical premium spends of over £250,000 per annum, Sanlam expect far more focus to now be placed on investigating the viability of introducing a Healthcare Trust. These Trust-based occupational PMI schemes essentially function as an employer self-funded medical plan, with Stop-Loss Insurance in place to limit the exposure to the company Stop-Loss or Gap cover as its also known, is an insurance policy that can be introduced alongside a group scheme, designed to continue the payment of claims above a specific pre-determined financial threshold. One of the key benefits is that the trust itself is exempt from IPT, leaving IPT chargeable only on the premium value of the stop-loss cover itself, opposed to the entire premium under a fully insured group medical policy. When compared with a £250k premium fully-insured policy at the new 9.5% level of IPT, an employer or corporate policyholder could see an IPT saving of at least £15,000 depending upon the level of stop-loss insurance selected.

Rather than operating as an insurance policy where premiums will be paid year-on-year with limited possibility for any type of “no-claims refund”, the Healthcare Trust provides a far greater degree of flexibility for the business. For example, a positive year, with relatively few claims, can provide a dividend/return of premium to the group policyholder. Conversely however, the Trust can also be confident that any exposure faced through a high level of claims is very much capped and balanced against the level of stop-loss/gap insurance that is chosen at outset.

Healthcare Trusts are by no means a one size fits all approach, nor the answer to endless premiums being collected by the insurer with no sign of a return, but where the circumstances allow, and so long as they are not considered to be contracts of insurance, implementing a Trust can be a great cost-saving measure.

The Health-Cash Plan and Dental markets are a little less heavily affected given their relative premium levels, however have nonetheless needed to consider this additional tax levy into their underlying premium levels from later this year into 2016/17. Healthshield have taken a lead in the UK Cash-Plan market as they have committed to retaining their current group pricing structure, regardless of the IPT increase, until 2017. Sanlam anticipate similar stances from our other working partners in the UK market, such as Medicash, Westfield Health, BHSF and Simplyhealth.

As the majority of the UK’s group dental insurance providers are linked to medical providers (with the exception of National Dental Plan – NDP), we have seen a range of comparable pre-1st November pricing reviews across that industry.

Sanlam Wealth Planning are a specialist UK-based and international employee benefits intermediary and work with a wide range of companies in the UK, from small family run businesses to large multinationals and UK corporates.

If you have any questions about your company’s group medical cover or any enquiries about Sanlam in general, then please do not hesitate to contact us

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