Opening the door to workplace pensions and business protection

Published  28 September 2023
   60 min CPD

Join Senior Intermediary Development and Technical Managers, Justin Corliss and Shelley Read and earn 60 minutes of CPD. 

In this webinar, we consider the key differences in different types of workplace pension agreements, recent market findings and the use of salary exchange. 

From here we take a deeper dive into business protection, understand some of the opportunities to talk about business protection with your SME clients, know how to position the potential risks, discuss the impact to a business and recommend a solution. 

Learning objectives

  • Identify the features of different workplace pension arrangements. 
  • Demonstrate the benefit of salary exchange in workplace pensions. 
  • Understand some of the opportunities of talking about business protection with all your SME clients. 
  • Know how to position potential risks during your protection conversations to support better engagement with new and existing clients. 


What's covered

Hi everyone and thank you very much for your time. My name is Justin Corliss and I'm joined today by my colleague Shelley Reed and we're both senior intermediary development and technical managers at Royal London. And today we're going to look at workplace pensions and business protections. So this presentation is likely to be useful for advisers who either have no or minimal experience with workplace pensions to date, but are interested in getting into this market and to understand the business protection opportunities that come along with it.

But it should also be of use to those advisers who have been involved with workplace pensions. But just feel that they're not fully exploring the business protection opportunities and you know what, particularly for those that haven't been involved in the market before now might be a perfect time to get involved too for a couple of reasons. Perhaps the most obvious is the introduction of the new consumer duty, which places an onus on advisers to act to achieve good outcomes for their retail clients, which will include employer clients.

Workplace pensions, and by extension, their scheme members. But in addition to this, you know every three years employers have to undertake what's called cyclical reenrolment. And that's the process where those who have opted out are automatically re enrolled into the pension schemes. Now many firms will review their pension scheme in advance of that re-enrolment date. So, if you can identify those approaching their re enrolment date, of course you can always ask them then it might already be.

On their minds, but maybe the overarching driver is that the world has changed dramatically since some of these schemes will have been put in place. Okay scheme charges may have changed, technology has improved, and employee wellbeing and financial wellbeing tools are now more prevalent within quality schemes than they were during the automatic enrolment staging period, which of course finished in 2018. So, I think it's fair to say this is an evolving market and if employers aren't regularly searching.

For the best pension offering to attract and retain talent, then they're in danger of losing quality staff to those who are, of course, for this to be CPD able, we need to have some learning objectives. So, by the end of this session, you'll be able to we'll do all the things you can see on the screen, really identify the features of different workplace pension arrangements, demonstrate the benefit of salary exchange in workplace pensions, understand some of the opportunities of talking about business protection with your SME.

Clients and know how to position potential risks during the protection conversations to support better engagement with both new and existing clients.

Okay to begin with, we'll focus on the pensions side of things and the latter half of the presentation will look at business protection. So, I guess we should start by looking at the main types of defined contribution or DC workplace pension schemes being used for automatic enrolment. We're not considering the public sector and the few private sector defined benefit schemes used for automatic enrolment today at it. Just get too boggy actually just on that point though there is a massive opportunity currently to advise.

Independent schools, many of which are likely to experience an increase in their employer contribution to the teacher's pension scheme and may consider leaving in favour of a DC or a defined contribution arrangement as a result. But you know what? That's a session in itself. But if that is something that you're interested in hearing more about, have a word with you. Usual Royal London Business development manager. And so we can discuss this further. We have a lot of experience in that market, okay.

 The defined contribution or DC workplace pension market is dominated by two types of arrangements. Okay we've got master trusts and contract based schemes. What you'd have previously called a group personal pension. Now a master trust is run by the trustees, who might outsource the administration to a third party, or they may deal with it in House.

Um, that can sometimes make it difficult to sort of advise that to get the management information. The mi that you need on the scheme if you're going to provide an ongoing service to the employer and the workforce master trusts are governed by the pension regulator TPR, not the Financial Conduct Authority as their occupational pensions, they usually operate a net pay system, the suitability of which has been questioned for some members of workplace pensions, and we'll talk more about that in just a second.

And just the last point there, I don't know if it is too much of an issue now, but I've  put it down as government backed and there was certainly a bit of a misconception in the market that particularly nest was government backed. The reality is however that none of the master trusts are actually government backed. Nest was established via a government loan and it does have to take any employer who wishes to establish a scheme with them. But you know that loan still needs to be repaid.

Contract based schemes on the other hand, are overseen by an independent governance committee or an I GC as we've got there, which every provider to contract based schemes has to established they are governed by the Financial Conduct Authority VCA.

Contract based schemes provide tax relief always via the relief at source system. We'll talk about that a little bit more in just a second. And you know on the whole they tend to be a bit more flexible or at least have a greater breadth of at retirement options than a lot of master trusts. Now, anyone who's looked at the Dwp's helping savers understand their pension choices will know that the government have told master trusts to offer the full breadth of retirement of out.

Now it just a couple of things to say about that. Firstly, some of the bigger master trusts already have these retirement options, OK, but for those that don't, you'll need to consider when these will be in situs. There's no definitive time frame mentioned in the document. And the other side of that is cost an expertise. And by that I mean, how much will it cost to develop and implement these new options and who's going to bear the brunt of these costs. And of course, as they have no history of flexible decumulation options.

You know, will they have teething problems with trying to set these things up now just before we go any further, let's address the elephant in the room. Tax relief okay. Now, since the beginning of automatic enrolment, the debate has raged as to whether the net pay system is suitable for workplace pensions and the diverse needs of the Members which make them up. Now. Contract based schemes offer members tax relief via the relief at source systems. So if a Member pays £80 into a pension.

Irrespective of their earnings, they'll get that topped up to 100 pounds via basic rate tax relief. OK, the screen claims that from HMRC, so the member doesn't need to do anything.

Higher and additional rate taxpayers can claim back the additional higher or you know, or additional rate tax via their the additional portion of that via their self-assessment tax return okay. So for most of the country it's an extra 20 or 25% obviously different in Scotland. So they can do that via their tax return or by contacting HMRC. Now as unbelievable as it sounds, you'll probably gain some kudos by reminding higher and additional rate taxpayers.

But I need to claim that extra relief, an alarming number of people don't claim it now. One drawback of this is that the extra tax relief is usually provided by altering your tax code so that extra well 20 or 25% to everywhere apart from Scotland doesn't actually go into your pension unless you increase your contribution to reflect it. That is unless of course you make the contribution via salary exchange, which is often an available option.

The contract based scheme certainly is with ours.

Master trusts, on the other hand, generally provide tax relief via the net pay arrangement. And you know, there are a couple of exceptions who offer both net pay and relief at source, but they're still fairly rare. Now. The main issue with the net pay is the way it operates. The pension contribution is deducted from gross pay before tax is calculated. Now the National Insurance contribution is still calculated and paid on the gross pre pension salary though.

Now for higher and additional rate taxpayers, they're getting all higher or additional rate tax relief at source and it's going into their pension. So far it looks great, doesn't it? The problem arises for lower paid employees, often part time of which a disproportionately high number are women. Okay. Now at present, the income trigger point for being automatically enrolled into a workplace pension is earnings of £10,000 per annum. But the personal allowance below which you don't pay any tax.

Is £12,570.00, so if somebody earns £12,000 per annum having their pension contribution deducted from salary before tax is deducted isn't really a great deal of used to them as they weren't going to pay any tax on it anyway. And The upshot of this is that they don't get any tax relief on their pension contribution. Now there is a fixed in place for this and it's okay, but I wouldn't say it was brilliant and I'll explain why to address the net pay anomaly the government stated in their budget speech.

October 2021 that those impacted will receive a 20% top up to contributions from April 2024. Now according to the government, that's going to benefit around 1.2 million people by an average of £53 per year and as a kind of alluded to before, 75% of the people affected are women. Now what's slightly disappointing is that the first top ups won't actually be received by members until the 2526 tax year, so.

You know can happen for the 2425 tax year, but it's only then refunded at the end of that. So into the 2526 tax year and there's no backdating for the years of missed tax relief. Now my other concern with this is that the tax relief goes to the Member, not into their pension. And while that might be appealing to these people in the short term, certainly doesn't help bolster their pension provision longer term.

Now the second point that I just want to touch on in the comparison of the main types of scheme is adviser charging now, contract based schemes will usually facilitate adviser charging, which I think has a huge amount of relevance in this market. Some of the members of these schemes will go on, in all likelihood to become your advised clients. Not all of them probably not even most of them, but some of them probably will. And one of the most cost effective ways to pay for this advice is via adviser charging. It's got two benefits. Clients don't have to find the cache.

Salary or savings to pay the advice fee plus the fee is paid from tax relief savings. And do you know what? If you gave me the option to pay £1000 advice fee from my bank account or from my pension fund provided I'm not over the annual allowance for that year, I'm going for the pension fund every time and the main reason for this is even if I don't want my pension fund value to fall, I just have to pay £800 into my plan and tax relief will top it up to 1000 pounds.

Basic rate tax relief will top it up to that, so my £1000 advice fee is only cost me £800. Now many master trusts won't offer the adviser fee option, so in effect that could push the cost of any individual advice you give to these members up by 25% admittedly provide our own master trust much more likely to have an adviser charge option, but then we get back to that issue around master trusts of will you be able to effectively get the management information? The mire that you need?

From them, if you want to advise these clients on an ongoing basis, so we just need to remain mindful of that.

Right before we go on and look at some aspects of workplace pensions in a bit more detail, let's look at some of the key points you might want to raise with employers when discussing the suitability of their existing workplace pension arrangement. What's surprised to hear that we're looking at 5 here?

So number one is the employer spending too much time dealing with problems in their scheme? Not going to elaborate too much on that. I think it's pretty straight forward if the tool you've got isn't working properly, you buy a new tool or you suffer the consequence of a job poorly done.
Next one though, is the default investment option suitable for the employer's workforce? Now, that's huge as around 95% of workplace pension members sit in the default option. It needs to be robust and transparent. It needs to cater for the whole workforce. Now overlay that with ESG considerations and the need for Sharia compliant funds and that sort of thing. You can see that that will be an issue that will grow and grow and grow as time passes other member.
And you can communications clear, simple and jargon free. Furthermore, who's sending them? Is it the adviser's responsibility or the provider of a paper or electronic? Is the employer just given generic documents to alter and send to employees, or just the provider deal with all of that? And if they don't, how much additional cost does that add for the employer through time and resources?
What retirement options are available? You know, pension freedoms were a bit of a game changer for DC pensions and I don't think it's unreasonable as a member of a workplace pension arrangement to expect that all that functionality will be available within your scheme. Yet we know that the largest master trust out there, nest, isn't table currently to facilitate pension freedom functionality and therefore any Member wishing to take benefits will need to switch to another provider which could incur advice and set up costs.
And then the last one here is the scheme as cost effective as possible. And I do mean cost effective, not just cheap workplace pensions are unusual in this respect as you have more than one party to consider. Firstly, there's the employer. Are they paying a fee? Is the middleware software they use something they have to pay for monthly and are the admin duties that you know are sort of mentioned in the first point there impacting on productivity. It's a hidden but it's a very real cost and then you have the members are they getting the best value for money.
And obviously nobody wants to pay more for something than they have to, but due to that 0.75% charge cap on workplace pensions, pricing differentials can be quite small. Remember, a scheme with an annual management charge of, say, 0.5% that does everything that the employer and the workforce needed to do at no extra cost versus the scheme that does very little for slightly lower annual management charge of say 0.45 that's only pushing.

The annual cost of a client with £50,000 in the fund and most workplace pension members don't have £50,000 in their fund yet they will soon, but they don't yet, but for those that do, it's only pushing that cost up by £25 per annum, so let's just make sure that you're considering value, not just price.

OK, so we're planning point, we've got a couple of these. We go through planning point here is could you add value in this market with the right support and I do just want to point out that our business development managers are pretty experienced in this market. Many of them were around to help advisers with employers at the very start of automatic enrolment. So when employers first staged and you'll find that many of them have written dozens of schemes. So real experts who can provide you with a wealth of breast practise ready and willing to help you.

Ok, now we'll have a look at some employer and advisor research and I think it probably makes sense to start at the beginning and get an idea of how often employers review their workplace pension scheme. And as you can see from the slide here, it's a little bit of a mixed bag. This Royal London research covering just shy of 500 schemes suggests that about 20% do so annually. That does jump to around 26% for advice schemes, by the way.

A further 20% review every two to five years and a significant portion 41% have no set time frame for doing so now.

I might be making too great a leap here, but from your perspective that 41% with no set time frame presents an opportunity, to my mind, okay these employers didn't say never, which as you can see was an option. So presumably they are open to the idea of reviewing the scheme to achieve a better outcome for themselves and their employees. And I guess that 41% could maybe be split into two groups advised and non advised if they're non advised, then there's an opportunity to create a relationship with this firm.

To extol the benefits, you can bring through regular reviews, OK, and we can talk about that more as through the presentation and obviously there's the all the business protection part that Shelly's going to cover. Alternatively, they have an advisor, but for whatever reason, this advisor isn't reviewing the scheme on a regular basis. Now here it would be worth discussing with the employer whether the advice was just initial help with establishing the scheme, but no significant ongoing assistance. And if that is the case.

And once again, it might be an opportunity for you to approach those employers to outline the benefits of regular review provided by your firm could bring.

And the more embedded automatic enrolment becomes, the more it's recognised as a tool to attract and retain the best employee talent. You know, the more open to regular reviews to enhance the scheme benefits that employers are likely to become.

Right now, moving on, as you can see here, this is, you know, really important stuff. This graphs from work buzzes October 2022 report entitled The state of Employee Engagement and shows the responses from circa 300 people leaders surveyed. It shows the top priorities for HR departments. And while I don't have the full list here, confident on the slide, you can see the top six. And as you can see, the top three priorities are precisely what we're trying to achieve.

With a robust pension offering, we want employee engagement. Engaged employees are less likely to leave and the next two are about attracting and retaining talent, which I've mentioned a couple of times already.

It's also interesting to note that the last one we have there is well-being and many pension schemes offer significant financial wellbeing tools for scheme members to use, and that's something that you know you'd be worthwhile speaking to Eddie Provider that you were thinking about using their workplace pension just to see what they have with regard and offering for that okay. It's also interesting to see what your peers in the advice industry say. A scheme absolutely needs to have.

Yeah, this one's from corporate advisors, 2022 workplace pensions into retirement report, and it considers the functionality the scheme absolutely needs to have to meet the needs of the employees. And as you can see, the absolute top priority is partial tax, free cash withdrawals pretty closely followed by partial uncrystallised fund pension, lump sum and flexi access drawdown. Now what I found interesting when I first looked at this, that's pensions interesting, by the way. It's not real life interesting.

We'll go with it is that the top four all relate to the at retirement functionality of the scheme. Now, most contract based workplace pensions. You know what we'd have previously called a GP will offer all four of these. Certainly the top three anyway. But that's not the case with every master trust Okay now, I'm not trying to bash master trusts here. Very good products. And I have their place. But that is simply the case. So it is definitely worth checking the at retirement functionality of any workplace pension solution.

That you're considering using as that's what your peers are saying is important.

So we've seen what employers have to say and what advisers have to say. You're scheme absolutely needs to have. But what about the key group here? What about the employees themselves? Well, this research is from the 2023 Royal London Workplace Pension survey, and it outlines the challenges employees face with regard pension saving. And as you can see, 40% say they have not thought about their retirement income, that they'll need okay. And that's pretty concerning is it's very hard to know if you're on track.

To achieve your goals, if you don't know what your goal is, 22% say that they don't know what happens to money invested in a workplace pension.

I'm imagining it's pretty hard to engage with your pension if you don't know how it's invested, so a definite education peace leader there. Incidentally, when we look at the 18 to 24 age group, nearly one in four think that it goes into a bank account and that thinking is unlikely to make you more engaged with your pension. I wouldn't have thought 59% say that they're not saving enough for retirement or they don't know if they are and only 39% of those asked.

And this was a big survey of over 6000. People say that they're confident about their retirement. OK, so that's not supposed to be a doom and gloom story. Rather, what all that tells me is that employees are crying out for help to understand some of the what advisers and would probably describe as basic elements of workplace pensions. And that represents opportunities for you as advisers to offer that help.

And rather than to have to guess exactly what parts these employees want help with this 2022 Drewberry workplace pension report sets it out for us now. As you can see at the top by far and away the number one thing people want to know is, am I saving enough for retirement now? Something that can really help with this is the pension and lifetime savings Association, or you're probably more likely seen it as PLSA. And they're retirement living standards. Now we have a follow on presentation that covers.

The PLSA retirement living standards in quite a bit of detail and outlines actions you could suggest to clients to help them achieve these. So if you're interested in that once again, have a word with your usual Royal London BDM about getting access to that anyway, I might go through the rest of these now as you'll get a PDF of the slide deck after this to refer back to them. But it is helpful to have this insight in the areas people want help with and I will draw your attention to.

The fourth point though, which is salary exchange or salary sacrifice, we're going to take a look at that next okay when I speak, two business development managers about workplace pensions and the advisors they have who've been successful in that market. There is one common theme that sticks out and it's salary exchange. But do you know what most schemes don't currently utilise salary exchange despite it not being as complicated as many people imagine. My experience is not many people understand it.

But you know what financial advisers understand it. And if you can successfully convey the benefits to employees and employers, it's possibly one of the easier ways to demonstrate a tangible benefit that you can add. You know, we've been given numerous examples of schemes being one off the back of and explaining and highlighting the benefits of salary exchange okay. So let's run through a briefcase study to bring this to life a little bit. And look, Speaking of bringing it to life, I've tried to keep the numbers in here as realistic as possible.

OK, I know we often see salary exchange examples and everybody's running around on, you know, £170,000 a year. But do you know what, that's not the average UK salary. So what we've tried to do is to try to make this a little bit more realistic and hopefully of practical benefit. So here we have Sam Okay. He works for Acme Limited. If you're old enough to get the joke, I apologise. If you're young enough not to get the joke, that probably excellent for you. He has a pensionable salary of 35.

£1000 per annum, which is roughly the average UK adult salary for a full time employee. The Automatic Enrolment scheme sees him contribute 5% of pensionable salary and his employer contribute 3% of his pensionable salary. So we're.

I'm assuming there are no band earnings here. You know the 8% is paid from pound one just makes the numbers a little bit easier to grasp.

Acme Limited Sam's employer have approached you to review their workplace pension scheme for their 25 employees. They don't currently utilise salary exchange okay, So what we're going to do here is look at Sam's position pre and post salary exchange, then look at the employer's position pre and post and then at the overall. Now just before I start I just want to say don't get too high up on the maps and the numbers when they appear. I appreciate they're not up there at the moment rather just focus on what we're trying to achieve.

So if we look first at Sam, OK.

Before salary exchange, he has a headline salary of £35,000 per annum was we've mentioned he makes his own pension contribution of 1750 pounds gross or 1400 pounds net and he has a take home salary of £26,422. Now after salary exchange. So on the right hand side his headline salary is lower, he makes no pension contribution as his employer now makes all of this on his behalf and his take home salary.

Is still £26,422.00, so while it's lovely that Sam's take home salary hasn't changed, we haven't really seen any benefit to him thus far. Have we to see this, we need to look at the employer's position.

Now by the employer paying Sam less salary, Sam makes a National Insurance saving and so does the employer. And in our example, Sam is redirecting all of his National Insurance savings to his pension and the employer is redirecting half of their National Insurance savings to Sam's pension and keeping the other half for themselves, which they quite entitled to do. The employer could keep all their National Insurance savings if they wanted to, and there are a few other options to won't go into all of them if you wanted.

Now once again have a word with you, your usual BDM. But our example here Sam's redirecting all of his NI savings to his pension. The employers were redirecting half of their NI savings to Sam's pension, keeping the other half of themselves. So we know that Sam's headline salary has gone down, but look at the employer contribution row okay the employer's pension contribution has gone from £1050 per annum before salary exchange to 3251.

Downs per annum after salary exchange and that's because they still pay their 1050 pound contribution. Plus all of Sam's contribution, plus all of Sam's National Insurance savings plus half of the employer's National Insurance savings, all into Sam's pension. And even with all this additional pension contribution, the employer's making, the cost of employing Sam reduces by £142 per annum.

So Sam now has £3251 per annum going into his pension, which is £451 extra each year for the same take home pay he received when making a pension contribution without salary exchange. And that's the key point. It doesn't make your pension contribution free, you just get more bang for your buck acne's total cost of employing Sam for the year reduces by 142 pounds. If we had 25 Sam's in the scheme.
And of course, we know we could don't we? Because we put him on average salary. That would mean the saving every year for the employer of 3550 pounds. OK, I'd argue you've gone a good way to creating your own fee, and I'd probably hammer that home with the employer as well. Maybe something like, you know, in the first year my fee for doing the transfer of the scheme or the switch of the scheme is whatever amount portion of that. And then on an ongoing basis, I'll charge X proportion of this saving as my ongoing retainer and just ensure that the employer is aware of that when it comes to pay their fee next year and the year after and the year after that that this isn't an additional cost to them. This is Money they were never going to have if you hadn't created this saving by implementing salary exchange now salary exchange admittedly won't be suitable for absolutely everybody and you don't have to have the whole workforce on it. Some can be on and some can't, but a few of the pitfalls that you should be aware of and you do need to make employees and employers aware of.

As you know it will reduce your headline salary so it can impact death in service. Lump sums might impact borrowing abilities, and you do particularly as an employer, need to be careful not to reduce anyone's salary below minimum wage or below the level to be an eligible jobholder.

Now it also is a change of employment contracts. So there is a very good chance that you might need to seek legal advice as well. But you know, provided you can address these points using salary exchange can be highly advantageous for both the employer and for the workforce. So we'll review all planning point. Have you discussed salary exchange with your employer clients and if not, I think it's probably worth at least the discussion okay now we're going to move on.

To look at the wider opportunities and why advisers value the workplace pension market, now I speak as a part of my role to a lot of advisers who have been successful in this market and what value that they gain from being in it. And you know, the chat that we get can be loosely broken down into the three areas which we're looking at just now. Advice to the business themselves. So corporate protections and investments and so on. Obviously, I'm not going to cover any of that.

Because that's exactly what she's going to talk about in the minute advice to the business owners and senior staff. That was a big driver for a for a lot of the ones I speak to and advice to the wider workforce.

You know what a lot of the time it does focus on at retirement advice because a lot of people, that's only when they've got loose sufficient money to warrant the advice. But that's not always the case. Now one point that I do here repeated many times was the importance of the scheme governance report and identifying those approaching 55 so that the advisor can speak to them. And so access to the management information, the MI on the scheme is vital here. So absolutely worth checking.

What output the provider you're thinking about going with can give you before you. You make a final decision. I just want to point out though that you know you don't have to deal with every part of the business to get involved in this market. Maybe you only want to get involved with the business owners and senior managements. That's absolutely fine. There's not a model that you have to follow. But I do hear the comment in the bottom right hand corner, the corporate works simply opens doors.

OK, I did just say, didn't you don't have to deal with every aspect of the business to get involved in this market. But if you were wanting to deal with the wider workforce, then here are these points are probably more applicable to that salary exchange. I won't cover again. We've already looked at that, haven't we? So clinics in seminars, what I'm driving at there is that if you want to connect with the wider workforce, then simply setting up the scheme and then being invisible to everyone but the directors thereafter.

Probably won't work very well. Clinics and seminars. Great way to get in front of people and get your message across next. We say they're financial planner. I know some firms who have bought on are financial planner, often promoting from within simply to deal with the workplace pension clients on an individual basis. You know it can have a few benefits that can give a different demographic to your client bank. It can give a different income stream, that sort of thing. Financial wellbeing apps, probably a little bit advanced for what we're talking about today because we're talking about people.

Might be looking to get into the market, but it is something worth considering. So speak to the BMS of the providers that you're looking at and then the last bit there that I've got wills and power of attorney. I should have said guest speakers. That's really what I'm driving out. Just to say remember, you don't have to do all of every clinic or seminar yourself okay you could cultivate a relationship with and invite specialists in will writing or power of attorney or mortgage specialists or protection, you know, whatever suits the demographic of your organisation. It's just a matter of getting.

Yourself and your brand in front of them and talking to them about issues that are relevant to them at the time that they need to hear about it. Right okay. That's all from me at the moment. What I'm going to do now is hand you over to Shelley to take you through the rest of the session.

Thanks very much, Justin and a good morning and a warm welcome from me to the protection segment of our webinar today. So it's just instead at the very beginning, I'm Shelly Reed and I'm delighted to have the opportunity to chat to you today about business protection. Now we're going to address this from a pretty basic level. So if you don't do a lot of business protection or it's an area you'd like to become involved in more and maybe become more confident in.

Then I'm pretty sure the next 30 minutes will be really useful to you, and if you're more prolific in the business protection space then please don't go. I'm sure there will be something you've forgotten, or something we could help you engage even more with those small business owner clients. So why do businesses need it? Well, really it's a safety net for those businesses should the worst happen. And I think a good way to talk business protection.

Is to put it into a language that business owners understand and the way I've done this here is just these four boxes which are control and this is all really about retaining ownership, retaining ownership to the directors or shareholders that are left in the business should, you know, should partner get critical illness or die prematurely. And also it's about getting fair value for the deceased.

That person's family debt, then we're really looking here to mitigate the risk of being unable to repay any debts on death or illness of a key person. And when we looking at key persons looking at profit and here we're trying to protect the impact, the death of a key person who really has a great influences on the profit for that company.

And finally, death in service, not strictly speaking business protection, but a really good follow on conversation from business protection or vice versa. I'm definitely a believer that relevant life policy can really open doors to talk business protection to your small business owner clients. So I think the best way to do this is to really try and bring it to life with a case study. So let me introduce you to.

Royal London sockets there and manufacturing company and there are 4 directors. Ruth, who's the managing director, Lee, the finance director. Anita who responsible for sales, and Mona who looks after everything on a day-to-day basis. As the operations director. And I think you'll find that many when you sort of look under the bonnet of many companies that you deal with or clients that you have who have companies then you'll find that quite often their roles.

Are pretty siloed that each director will deal with their area of the business, so let's move on to our next slide and just have a bit of a thought about what would happen in a business if something happened to one of the key directors. So we need to look at the stakeholders in this business. So first of all, let's consider how customers feel. Let let's assume that Anita, the sales director passes away suddenly. So the customers, they might feel a little bit vulnerable.

Oh, the service levels going to be the same is the quality going to be the same? They're contact might have been a need to, so who do they talk to now? So it might leave customers a little uneasy.

Now employees of Royal London sockets, they might be, you know, they're dealing with the grief quite often. Small companies are quite close knit, so they might be dealing with the grief of losing Anita. But again, you know, their core interest is probably going to be their families and looking after their, you know, their home, their families, their lifestyle. So do they feel now a little bit vulnerable, wondering the strength of the company that they've worked?

For that only natural things, I think for an employee to think about now competitors, although it might be a quite a tight knit industry. Do competitors of Royal London sockets now suddenly think, might this be a time to approach their best customers and see if there's an offer that they can give them to move across because as we said a few minutes ago, the customers of our ELL sockets might be feeling a little bit.

Very about the sort of level of service they're going to receive now, banks.

Are likely to be looking a little closer at the company. They might feel that it's not quite as strong as it was in a time where maybe or else sockets didn't have any business protection, it could be that this was a time where they might need that overdraft, or they might need some additional borrowing to help with recruitment etcetera. And what are the chances of the bank advancing or loaning anymore money when you know there's a bit of a vulnerable time?

Happening there while they try to deal with deal with the death of a Anita and trade creditors, could it be that you know they?

Wants cash on delivery now when they deliver their sort of widgets to our sockets to make their products and that might be the last thing that RL sockets need and the other thing I would say about competitors is it it's not only customers that they might be going after a viral Sockers, it could be that they start to talk to some key employees too. And because it might be a time that they might be able to get them to move over to their firm.

So really what I'm trying to do is paint a picture of, you know, a very unsettled time without a wad of money from business protection to look at all of these solutions.

So, going back to why we need business protection, how do those business needs that we've maybe just highlighted translate into real protection solutions? So I think probably the best way is to look at each of those areas in, in turn. So the first one of the four shareholder and partnership protection. So the main objective here is to ensure that a business has funds readily available to buy a deceased employee share in the business.

This lets the business retain control of ownership of their company and keep it in the hands of those who've built it and really avoid the risk that the business cannot buy back the shares, resulting may be in the shares falling into the hands of someone who doesn't have experience or the desire to be part of that business. It could be another family member that comes into the business, you know, without that expertise and knowledge.

And I think importantly, it ensures the family of an owner who dies receives fair value for the share of the business. And when many small businesses may well be families or definitely close friends, then I think that most of the other directors or shareholders of the business would want to make sure that the family of the deceased person is most certainly looked after.

So let's move on again and justice, have a look in our Royal London sockets, how that would work out. So we've got these four directors and they agree that I'm upon death of a fellow director. They want to be able to maintain control of the business. That's imperative in my opinion. So each shareholder.

Take sight of £500,000 policy on their own life basis, which is written in trust for the other business owners. Now they may want to consider an agreement that shows how the shares of the business will be treated in the event of death or serious illness such as a cross option agreement and again on advisor website. There are some examples of a cross option agreement that you might be want to use with your clients. So in this scenario Anita dies again suddenly. So the 500,000 policy pays out on that claim and it will go to the surviving shareholders within the business trust. Now they can use this to buy back the remaining shares from Anita's family. And again Anita's family. We see fair value and can walk away from that business if they wish to. But on the other hand, with no business protection in place.

The family may receive nothing at all from the business and the remaining directors could struggle to generate the funds to buy back shares. And really, that's not a very comfortable situation to be in either for the family or for those remaining shareholders.

So let's move now to loan protection.

Now, as this suggests, it protects A business's ability to repay debts, such as corporate loans. If a key person dies or becomes ill and can't work. So most forms of debt can, and in my opinion should be protected and the objective here is to ensure that the business has capital to repay that business debt and loans, or indeed be able to maintain those payments.

And examples of some debts that I think could be and should be covered with loan protection or on the screen now. So bang clones, you know we've seen over the pandemic see bills and buy back loans directors loan accounts are really, really important. I'm not sure if you're aware but on the death of a director a director's loan accounts do become immediately repayable and that can result in the demise of a business.

Directors loan accounts of generally quite small. We see a director's loans as normally you know, 50 a hundred, you know maybe 150,000. Don't get me wrong. We've seen some directors loans of about a million but on the whole they're at the lower end of that at that level and we know how cheap protection can be just to protect those loans.

So low notes connected to management buyouts and property pregnancy purchase could also benefit from this route. So let's move on and look at what that actually means for our sockets. So we've got this example again and this time they've got 100,000 business loan and Anita is one of the shareholders covered with a protection policy. Now if a NATO passes away suddenly.

Then the money can be paid out from the claim to repay all or part of the outstanding debt. But again, if there's no business loan protection in place and Anita's not covered with a loan protection policy, the business could certainly struggle to pay back that loan and it's not going to give any confidence to the bank that look after them.

Now let's move on to keepers and protection. So again, these covers the businesses, key people in case they die, become ill or unable to work due to long term illness. So the key person remember could be the business owner could be a sales manager or really anyone else who is key to creating profits or running that business and it can be set out to pay a lump sum or protect the profits. The key person generates for the business by paying short term.

And come to the business. There's no real one rule for calculating the amount of cover, and it really needs to be assessed individually and I see many companies who, you know, ask for their help of their accountant in assessing what might be due. So how can we help now business owners to see who is key? So I think it's a good idea when you arrange a meeting with a business owner client to ask them to have a structure chart to their business.

With them and ask them to tell you about the various roles of employees, how long they've been with the business, how did they join, what do they exactly do and obviously their salary and any employee benefits. And then ask the question how the business would fare if they were no longer there. In this way the business owner will see how important certain employees roles are and start to understand and the need to factor their loss.

Into their business continuity plans. If they don't have a structured chart, then why not draw one up together?

And if you have two people running the business, look at who does what, what happens if one of them is away, for example, on holiday, do they have a Subs bench to someone step in to cover their role or when they're back from their holiday has none of their work being taken care of their inboxes full and they've got lots of calls and contacts to make up on. If that's the case, talk to owners about what would happen if the.

And the person is not ever going to return to that business. And in a typical SMS, as I said earlier, you often find that people work in silos. Invariably people only know how to do their own job, their own areas of expertise. And I think that's a real good, good way to to start that conversation. So let's look at key person protection in.

And in our RL sockets company, they're back again, and this time the business takes out keepers and cover on Anita. And that's value of that is the policies 250,000. Now if I need to suffers a heart attack or has to retire early, Royal London with a policy in place can now hopefully keep those competitors at Bay, protect those profits to all or some degree.

Keep that line of credit with trade creditors and cover any immediate costs or loans that need to be paid.

They have money there to fund the recruitment of any new sales staff and hopefully that will also keep the bank happy. On the other hand, with no protection in place, there may be some real challenges faced by the business. If there's no money to try and find a replacement or the percentage Anna contributes to the profits, profit really makes a big hole in that company. The bank is concerned. There's lots of profit.

Those business costs become even more of a burden. There's lack of funds to recruit that line of credit might be cut, and as we said earlier, those competitors might be eyeing up. Are our sockets customers and also key staff.

So let's come to our final area, which is relevant life policy. I haven't got time today to go into great, great detail about this, but I'm sure you all know it provides a tax efficient way for employers to provide employees with debt, debt in service. And it's great for high earners with lifetime allowance issues. I know that that's being phased out, but also for small business with two flute.

Too few employees to set up a group scheme and people wanting more flexibility with their death in service. So for example, we see many directors who may be have a group death in service scheme but they want more flexibility and maybe even more cover. So there's nothing to stop them taking out a relevant life policy. On top of that group scheme. Obviously taking into account the maximum limits involved. So for the final time, let's bring this to life.

With our company are our sockets, So what this means for RL sockets then is that if we take out a relevant life policy for each employee written into trust as it has been, has to be, and then Anita passes away suddenly this will mean that the claim can be paid to the trustees, who will immediately pay the beneficiaries benefits not counted against their lifetime allowance. But again, bear in mind that although this is being phased out, it's still has big advantages for lump sum benefits, and it's, you know, it's a good thing to have. It's a boost to employee retention though in that they have death in service. It might help to recruit someone who already has that with a a previous employer. But again, if the company doesn't have that relevant life plan, then Anita's.

I'm laying might struggle to cope financially and the business really is unable to offer any support and as we said for many friends and family type businesses that can be, you know, something that they really don't want to be in a position to have to try to support. So let's look now now that we know the four key areas of how we talk risk with business owning clients. So how do you make the chance of claiming on a protection policy?

Real to clients and how do you talk about the risks that they face? Well, let's look at Lee now. Lee is our Finance director's 49 years old and he's finance director of the small manufacturing company. He's a moderate smoker and he expects to work until age 17. So let's imagine that you had had 100 clients that were exactly likely or what's the risk and chance and probability.

I've of something happening to late during his working lifetime. What are the chances of him needing to make a protection claim during that working lifetime? So first of all, let's have a look at the chance of.

A client just slightly dying before the age of 70. Now let me ask you in a couple of seconds just to have a think about what those chances are. Remember Lee's 49 year old. Well, let me tell you the chance of dying before age 70. For Lee, it is relatively small, just 13%. But let's move on and have a look. What are the chances of lay or 100?

Once, just like Lee developing a critical illness before the age of 70, what do you think those figures might be?

Hiya, I'm sure you'll agree. Well, the figure actually is 38%, so significantly higher the chance of developing that critical illness. You know, it's pretty. They're pretty startling figures, aren't they for Lee? Let's look now at the chance of Lee actually having to take two months or more off work before the age of retirement. So again, have a think about that, Mark.

What might that percentage be?

Well, let me tell you the chance is 3636% chance of Lee having to take two months or more off work before his retirement. And if you had had 100 clients like Lee, 36 of them would be in that position. Now let's put all of those figures together and look at the chance of any of those things dying prematurely diagnosed with the critical illness. Having to take two months or more off work. What are the chances of any of those things happening?

Before Lee reaches age 17, what do you think that might be? Well, the figure is a quite whopping 65% chance of one of those things happening today, and I think you'll agree that's quite startling figures. So again, if you're thinking if I had these percentage chances that each and everyone of my business owner clients that would really help to have a compelling and robust protection conversation, well, the good news.

Yes, like many providers, we have access to a personalised risk report. It really very easy to prepare and can be accessed by the marketing studio on the Royal London Adviser website. And again, if you need any help with that then please contact your normal Royal London sales BDM. So as we move to the end of our session today, let's just have a look at finding the opportunity. How can we actually get to speak to these clients.

Well, I think one thing that's I'm always a great advocate of is segmenting your client bank. Perhaps start with clients that you might have done a mortgage for recently and things to bear in mind. What's their job? Title clues can be really given in them either being part or owning a small medium enterprise, the type of goodness of a business could always be a good clue as well. And other points on this list.

And be a good checklist to make sure whether or not you have access to these bits of information to help discuss business protection with clients. So whether there's a shareholder agreement, a partnership agreement, a loan agreement, do they have a will? Are there any directors, loan accounts, etcetera, etcetera are always a good starting point I think.

And then as we move on, we have lots of adviser support to get into the business protection area on our advisor website. So we've got a fact finding document that can help with segmentation exercises and you can put in details of the client and their business. We also on their next screen how can show you a summary of priorities. This is at the bottom of the fact finding document and there's a section where you can help the business owner.

Don’t understand and clearly see what the priorities for their business is and then each can be prioritised and maybe just estimate a cost involved in that fuel clients. And then finally there's questions to ask business protection. And I think if you're new to this area, this is a really important sales aid. It can help you ask the questions you need to put forward a business protection solution. So once you've done this again we've got lots of support and real.

Corporate business protection experts that can help you move that along to a building a solution for your clients. And finally, how do we grow this conversation? Well, I think there are many avenues and areas existing client banks first attack might be those small to medium enterprise business owners and maybe you've got self-employed mortgage clients where they're an.

Instant win to talk about such areas as may be relevant life policy and remember with professional connections your self-employed mortgage clients, you would already have their accountancy details, so that might be a good conversation to have with those accountant with a mutual client in common lawyers as well. They will be setting up a business legal documentation so they could be a real good connection as our general insurance brokers.

They are very, very familiar with talking to their clients about risk, but maybe the risk of fire, theft, flood and so it's just one more conversation to have, in my opinion, the even bigger risk of a director or shareholder being diagnosed with a critical illness or dying prematurely and your website, do you mention business protection there, social media, we either love it or hate it. But again, if you want to talk to business owners.

On social media, then talk to us about the support and marketing that we have to help you get that message across and if you are part of a professional networking group such as BNI, then it's always a great idea. I think you've got all those business owner clients there waiting to talk to you. And again, if you want help with some pitches or some slides or anything really to help you have that conversation.

Please talk to us and of course your pension wealth. Clients who are very used do cash flow modelling tools. Again, we think that that works on the business protection arena too. So I think that brings us to the end of what Justin and I wanted to chat to you about this morning. I'm pretty confident that our learning objectives have now become outcomes. So I will leave you with our advisor at Royal London.

Address and it just really leaves me to say, on behalf of Justin and myself, thank you so much for taking the trouble to listen to our webinar this morning. Please enjoy the rest of your day. Goodbye.

OK. And I will just add on. Thank you, Shelly, and I'll add on the there. You're not going to receive the e-mail immediately after this. It comes later on today. So later on today you're going to receive an e-mail from us with a link to the CPD questions relating to this webinar. Once you've answered those correctly, your certificate will automatically open and you'll be able to save it to your device. And if you'd like to rewatch this session, then it will be available once again, probably not immediately, but later on, on the Royal London CPD hub, so you'll be able to find a link to download a copy of the slides used there as well. So once again, thank you from both of us and enjoy your day.

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1. What is the maximum annual management charge (AMC) for the default option of a workplace scheme?
2. According to Royal London workplace pension research in August 2023, what percentage of people said they have not thought about the level of income they need in retirement?
3. Which is not a reason businesses need business protection?
4. Borrowing that might benefit from Business Loan Protection include all but one of the following:
5. Opportunities to talk to business owners about the need for business protection include:

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