Five takeaways for advisers from the Autumn Statement

The Chancellor’s Autumn Statement last Thursday brought with it a whole host of considerations for protection and health insurance advisers, writes Vitality’s Adviser Editor, Robert Harvey.

With the country now expected to enter recession amid the ongoing downturn in living standards, as price rises and inflation continue to bite, the recent Autumn Statement unveiled a raft of measures that the government hope will stabilise the economy and support those that are struggling.

Pitched as a plan to tackle the cost-of-living crisis, Chancellor Jeremy Hunt acknowledged the worries many in society are facing and pledged to “protect the most vulnerable”.

Whilst a number of measures were announced to support those struggling with the cost of living, tax rises and cuts to spending will impact many individuals and households.

But what does this all mean for financial advisers? We consider some of the key takeaways from last Thursday’s announcement and how these might impact conversations with clients.

1) Fiscal drag will mean more people face tax increases

Although the Chancellor announced no new specific tax rises, by freezing the personal tax allowance thresholds until 2028 and lowering the additional tax rate threshold (from £150,000 to £125,140), more people will ultimately end up paying more tax in the longer-term.

Reflecting on the Chancellor’s announcement, Vitality’s Kim Jarvis, Tax and Trusts Technical Consultant said: “Fiscal drag has the potential to bring in more revenue. We have seen wages rise but with the lowering of the additional tax rate threshold and the freezing of the others more people will be pulled into higher rate bands.”

We’ve also seen the basic inheritance tax nil-rate band frozen at £325,000, for further two years. This means that by April 2028 the nil rate band will have been £325,000 for 19 years. This coupled with increases in house prices means more families facing an IHT bill.

Data released by HMRC in September¹ already showed that inheritance tax receipts for April to August were up 11% on the same period last year, with that likely to rise further given the recent announcement.

Kim Jarvis added: “financial advisers can play a key role in helping clients manage their estate, particularly through life products and suitable trust arrangements. As IHT and other taxes impact more clients, this advice will only become more important over the years ahead.”

2) Financial planning for later life care is still necessary

With an aging population and more people living for longer but often in poor health, and conditions such as dementia on the rise, the need to fund and provide adequate adult social care is an issue that UK governments have faced for many years.

Adult social care funding featured in the Chancellor’s Autumn Statement, which included the allocation of further funding, but also notably a two-year delay of the implementation of the lifetime cap on personal care fees.

Under current arrangements, those with assets (including their home) of over £23,250 must pay the full cost of their nursing and any care home fees. The lifetime cap, introduced as part of the then government’s 2021 health and social care reforms, set a limit of £86,000 on the amount anyone will need to pay out of their own pocket towards personal nursing care costs, though it doesn’t apply to living costs, such as care home accommodation.

Back in 2020, we reported on the rise in people living with dementia in the UK and the high costs of care. The delay in implementing the cap will mean that many requiring care will continue to face the prospect of having to fully fund it out of their own assets, such as selling their home.

Conversations with clients around later-life care funding are therefore particularly important and relevant. Later life options or specially designed whole of life plans can be a valuable way of helping give clients more flexibility about how they pay for any care and provide them better financial security.

3) Record economic inactivity from those with long-term sickness highlights the importance of protection

In its most recent labour market overview, the ONS reported that the number of people economically inactive in the UK had risen over the last quarter, with record numbers out of work and not seeking work due to long-term sickness².

As part of efforts to tackle this, the chancellor highlighted that the Work and Pensions Secretary would be conducting a thorough review of the “issues holding back workforce participation”. Other measures also include a delay in transitioning onto Universal Credit for those that are currently unable to work and in receipt of Employment and Support Allowance.

For many of those out of work due to long-term sickness absence they may be facing existing financial pressures, on top of the current ongoing cost-of-living crisis. Any health condition may also be exacerbated by the added stress of money worries or debt, impacting the possibility of an eventual return to work.

If not happening already, now is a good time to be discussing protection with clients, as Andy Philo, Director of Strategic Partnerships at Vitality said:

“It’s worth highlighting to clients the value of protection products such as income protection, which can provide an important safety net against the financial consequences of both short and long-term sickness absence. Prevention too should form a key part of that conversation.”

Amongst the ONS stats on the number of people economically inactive, there was a 22% increase in the number of people out of work due to mental illness and nervous disorders between Q2 2019 and Q2 2022. Similarly, there was 31% increase reported in the same periods for those out of work due to back and neck problems, whilst those categorised as living with ‘other’ health problems and disabilities (such as long-Covid) resulting in workplace absence increased by 41%.

Andy Philo added: “We know that in many cases health conditions can be caused by, or exacerbated by lifestyle choices, such as lack of physical exercise, smoking and poor nutrition. Therefore, incorporating prevention into a protection solution can deliver better long-term health outcomes for clients and help them avoid falling out of work due to sickness or ill-health.”

4) Spending on NHS highlights the value of PMI

Amongst the measures to support health and social care, the Chancellor pledged an extra £3.3 billion in funding for the NHS each year, for the next two years. Combined with a review of efficiency savings, the chancellor will hope these announcements will go some way to easing the current pressures on the NHS.

Analysis and data published by the BMA in November highlights the growing backlogs and record waiting lists, with more patients that ever waiting for treatment³.

Fortunately, the chancellor didn’t choose to increase insurance premium tax (IPT), which could have had a negative impact on the uptake of personal healthcare cover and corporate health insurance, both of which are arguably more important and relevant than ever.  

In its January 2022 manifesto, Biba (British Insurance Brokers Association) had called for a cut in IPT from the current 12% to 10%. Athos Rushovich, Director, Specialised Health Sales and Dedicated Distribution at Vitality acknowledged that it remains to be seen whether there ever will be a drop in IPT, “but whatever the case may be, given the ongoing pressures facing the NHS it’s worth discussing PMI with clients, both individuals and businesses”. 

5) Falling living standard and rising prices are going to continue to hit households.

Although the Office for Budget Responsibility (OBR) predicts inflation to begin to come down next year, to around 7%, rising living costs and the economic challenges facing the country will continue to take a toll on many.

The chancellor announced some measures to help the most vulnerable from the effects of the cost-of-living crisis, including an increase in the minimum wage, a rent cap of 7% on social housing and additional payments for those on benefits and pensioners.

However, with energy bills set to rise next year after the chancellor announced a scaling back on the energy price cap, from £2,500 to £3,000 from next April, many households will continue to feel the pinch.

The concern for many in our industry is that these cost pressures may lead to cancel their cover. However, as we’ve highlighted there are things adviser can do to mitigate cancellations and now is good time to get on the front foot and engage with clients concerned about the economic outlook.

As clients scrutinise their expenditure, delivering value will be key as well, as Greg Levine, Managing Director, Sales and Distribution at Vitality highlights.

“More than ever it’s important that we’re delivering immediate tangible value to clients, particularly as the country moves into a period of recession. This isn’t just about protecting clients, but helping them save money, helping and rewarding them for managing their health and lifestyle, and supporting them mentally and physically.”

Read more about how to support your clients during the winter months here.

1 IHT receipts up 11% to £2.9bn - FTAdviser.com
2 Half a million more people are out of the labour force because of long-term sickness - Office for National Statistics (ons.gov.uk)
3 NHS backlog data analysis (bma.org.uk)