ABI mulls national protection plan

The ABI is considering proposing a protection scheme in which moderate-to-high earners are "encouraged" to buy their own protection rather than rely on state support.

The embryo idea, which the ABI says could be delivered via the Government in a similar way to NEST, would see households earning over £25,000, for example, incentivised to protect themselves.

ABI assistant director of health and protection Nick Kirwan says the money saved would be used to better protect low earners.

A NEST-style scheme of auto-enrolment for protection is also being considered, though all its ideas are "a long way off being ABI policy", Kirwan says.

The ABI says the scheme would consider state support sufficient for a household income of about £25,000.

But it argues in households with greater incomes - in which people are generally considered to have borrowed more - there is a "huge gap" between essential income needed and the amount available through state support.

"The higher up the income scale, the bigger the gap between state benefit and the income needed to survive," Kirwan says.

"This latter group could be encouraged to take out individual protection, as essentially the system is not working for them anyway."

He adds: "Whichever party wins the next election there will be a period of financial pressure for the country, but if we could help build up a more resilient society with more savings and more protection we could focus scarce resources on those who need it most."

But protection specialist IFA Peter Chadborn warns a model in which people on a certain income get state provision while the rest get private cover is "dangerous" and "raises the word 'exclusion'".

"It is dangerous to suggest anyone below a certain income will receive provision from the state, for example sick pay, which is comparable to individual income protection," he says.

"There is greater danger in people relying on state provision benefits and finding them wanting than in relying on income protection."

But he says he would welcome an "across the board" auto-enrolment NEST-style scheme based around employment.

"If you are changing employer it probably comes with a change of lifestyle and so is a good opportunity to review financial planning needs," he says.