Advisers are concerned government’s expected increase to National Insurance could lead cash strapped families to reconsider paying for health or protection cover.
Later today, the Prime Minister is expected to confirm a 1.25% increase to NI which would mean anyone earning the country’s average annual salary of around £30,000 would pay an additional £255 per year or just over £21 a month.
Health & Protection threw the question over to advisers about how such an increase in discretionary spend would affect those taking out health or protection insurance. While advisers acknowledge the difficult choices government face, they also say the NI increase could be the difference between whether people take out health or protection cover or not.
Steve Ellis, head of employee benefit consulting at Prosperis, told Health & Protection that in many cases families operate to strict budgets with both parents working, so the cost to the family of such an increase may be closer to £500 a year.
“This could strain the monthly spend and unfortunately people will prioritise and make decisions that may lead to cancellation of insurances,” he said.
“The knock-on effect of this may be fewer people with PMI, meaning they again become a liability of the NHS with the consequent reduction in IPT and P11d revenue.
“With local authorities budgets strained, in Leeds for example two care facilities are closing citing under use meaning people will have a stark choice of care at home or using private facilities. There needs to be a consistent national solution where cost of care is managed.”
According to Andrew Green, director at Craigdalliehealthcare, the NI increase would hit young people and lower earners.
“The consequence of the increase in National Insurance contributions could impact on those considering taking out PMI or other protection, or even those with existing protection insurance,” he said.
“Obviously, for employed members of the population the national insurance will be deducted and paid by the employer. Therefore, if the employer already has a group PMI scheme in place or group protection in some form, the employer would be providing the scheme and paying.
“So, in the short term the employees may not feel too much pain. For the self-employed, it will obviously be more of a challenge.”
But independent financial adviser Roy Mcloughlin says government faces a difficult choice as the cost of social care has to met somehow whether through an increase in National Insurance or income tax.
“The real problem is there is no insurance based solution for social care. Whenever politicians say ‘just insure against it’ – they can’t because there is no insurance solution for insurance,” Mcloughlin said.
“Why do the politicians keep talking about insurance solutions when there isn’t really one that exists?”
And Steve Herbert, head of benefits strategy at Howden Employee Benefits & Wellbeing, warns any increase to employer NI contributions could have a detrimental impact on investment in health and wellbeing strategies.
“This will essentially be another employment tax for employers to absorb at a time of rising salaries and employment costs given the labour market shortage.
“This could therefore actually put employers off investing in other health and wellbeing initiatives, which ultimately is not good for employees, employers or the state.”
Claire Ginnelly, executive director at Premier Choice Group, added: “The government has some tough choices to make to tackle the social care issue, which is growing as a result of the pandemic.
“Any increase in tax or NI will make people look at how they spend their money so could prevent them buying protection policies.
“We need to educate people on what insurance policies are available and how they can help. The industry has done quite a lot to highlight the benefits of protection insurance with campaigns like 7families but the government needs to collaborate with the industry more.”