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FT Adviser - Advisers face legal threat from group risk timebomb

Advisers have been warned they could face legal action after group risk providers revealed a substantial number of policies had not been updated to reflect changed legislation.

According to one estimate, more than three quarters of a million employees are covered by group income protection (GIP) policies that terminate at an old definition of the state pension age - and advisers are liable if they have not informed employers that the policies can be amended.

Back in 2011, the group risk sector secured an exemption to legislation to remove the default retirement age from group protection policies.

This was so that employers could terminate an employee’s entitlement to benefit when they reached a cessation age of ‘the greater of 65 or state pension age’.

The move followed fears that a claimant may be entitled to payments until they died, as the contract of employment could not be ceased without going through a formal capability dismissal.

Such a situation could have led to skyrocketing premiums, as age is the biggest determinant in setting group risk prices.

But six years after the exemption was secured, several providers have revealed a large number of their policies still have termination dates of 65 or under.

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