Will I be left withno cash?

State pension age changes can leave gap in cover for income protection

Financial worries or just looking for better value for money? Consumer champion Fergus Muirhead can help

I HAVE an income protection policy that I am currently claiming on. It looks like I will continue to do so until I reach the old retirement age of 65.

This was the age of government retirement when I took out the policy 15 years ago.

Now that the Government have moved my retirement age to 67, where do I stand with regards to the two-year period between the policy expiring and receipt of the state pension?

This will result in a two-year period with no form of income. Billy

WHEN we looked at critical illness cover a couple of weeks ago, I said I would come back and answer this specific question on income protection.

The connection is that for many people, critical illness cover provides a lump sum for people diagnosed with a serious illness. Income protection provides a regular income while people are unable to work, so the two often go hand-in-hand. The question addresses the issue of the ever-changing state pension age and the fact that as consumers, we need to be aware of these changes and how they are likely to affect us.

You don’t say which company your income protection is with, so I spoke to one of the best-known providers of this type of insurance and they gave me the following answer.

“Our approach differs slightly, depending whether a customer has an individual income protection policy, or a group income protection policy (ie, a policy through their employer).

“For individual income protection policies, all our customers can review their level of cover if their situation changes.

“If a customer has taken out a policy to age 65 and the state retirement date changes, the customer can review their policy to extend the ceasing age.

“This will be subject to a number of questions around health and lifestyle and it may not always be possible for us to change their policy.

“We send annual letters to our customers which remind them to regularly review their cover to ensure it still meets their needs. This acts as a prompt if arrangements such as the individual’s retirement age have changed since taking out the policy.

“For group IP policies, it is the employer that takes out the policy and they will determine the policy cease age.

“However, as part of the Equality

Act 2010, employers must provide group IP up to the later of age 65 or the employees’ state pension age (SPA).

“Where there is any shortfall in policy cease age, the employer may be liable to cover this cost. This means that all employees covered under a group income protection policy should receive this level of cover up to the later of age 65 or their state pension age.”

So the answer is that it depends. I assume the policy you have is an individual policy, therefore, the first part of the answer is likely to be relevant for your policy.

But the answer is complicated by the fact that you are claiming on your policy. And the other thing that the insurer told me was that they are unlikely to agree to any changes in a policy while a claim is being paid, so you are likely to be stuck with a policy that ends at 65 as was originally intended.

This means, as you say, that there will be a period of two years between your income protection policy stopping and you being eligible for the state pension.

There are two things that you can do. The first is make sure that you are aware of all the benefits that you might be able to claim if you are still unable to work between the ages of 65 and 67.

The second is to look at all of your non-state pension arrangements. If you have benefits built up in a personal pension or from an occupational scheme, the chances are that you will be able to access these benefits before you reach state pension age.

Depending on the type of pension you have, it could be that you could take an income from that pension at age 65 when your income protection policy stops paying and at 67 when your state pension commences.

You may, at 67, be able to reduce that pension income when the state pension kicks in and this might help to protect the value of your pension fund for future use.