New Zealand Income Insurance Scheme
As part of the 2021 Budget, the Government made a commitment to establish an Income Insurance Plan. Today (2 February 2022) it released a discussion document with the support of Business New Zealand and the Council of Trade Unions. It would seem on this occasion the Government has the right interest groups at the table.
The proposed scheme would be operated by ACC and is intended to provide benefits to workers who are made redundant (laid off) or unable to work due to disability.
On reading the discussion document my first thought was where might this impact on dentists - recognising the majority are either practice owners (self-employed with employees, or shareholder-employees) or independent contractors (self-employed).
My initial thoughts were as follows
- The scheme is intended to cover self-employed / contractors
- The scheme will also cover absences through health conditions or disabilities
- The scheme has no upper range for age eligibility - coverage beyond age 65
- The scheme will be funded by both an employer and employee Levy of 1.39%
Bearing in mind this is still a discussion document and submissions are open to the public through to 26 April. The earliest any legislation would be passed is 2023.
The proposed scope of coverage provided through the scheme is as follows
- An employer is to give four weeks’ notice of redundancy during which time the employee is still on 100% of regular pay
- For the first four weeks post redundancy the employer will pay 80% of the employee’s regular pay
- For the next six months the scheme will pay 80% of the regular pay
- The maximum income is $130,911 (equivalent to the ACC maximum weekly compensation benefit)
- Where an individual works in multiple jobs, the redundancy must affect at least 20% of their income
- There are training and rehabilitation programmes to run in conjunction with the benefit payments
- To be eligible for a benefit an individual must have paid levies in six of the previous 18 months
- Other earned income is offset against any benefit payable during a claim period.
So, how might this affect dentists?
- For independent contractors this may provide some additional financial support, particularly if working for multiple practices and a position is no longer viable at a particular practice. For the self-employed or practice owner, probably less so as there will be criteria around “manufacturing” the loss of a role - such as voluntarily closing a practice.
- Coverage of health conditions or disability will
provide coverage to all dentists although whether it
can be integrated into an existing income protection
programme will very much be determined by the final
scope of cover. My initial thought was potentially
changing the wait period on up to $104,728 (80% of
$130,911) of any existing Income Protection Policy
would provide a premium saving. However, the
restriction of a maximum six-month claim in any 18
months might still leave you exposed if you have a
recurring condition. It is worth exploring once the
scheme has been established.
- With no upper age limit this is additional
disability coverage for those dentists who continue
to work beyond the age of 65. Given the funding for
the scheme is a levy on wages the cost of cover will
not be age determined which would normally be a
hefty premium if the cover was available. (No
insurers will issue new policies for applicants over
the age of 65).
- The cost of the scheme is to fall equally on employers and employees with both being levied 1.39% of payroll. This would presumably be collected by Inland Revenue as they do now for ACC. Those levies will be passed on to ACC who will manage the scheme. The levy will be varied in future years to match the actual experience and cost of claims.
We won’t see the final version of the scheme until later this year. The legislation would pass next year, and implementation is probably 2024 at the earliest.
Given that many western countries already operate similar programmes, we are playing catch up with worker protection legislation. It will come at a cost to both employers and employees but hopefully softens the financial impact on those unfortunate to lose their jobs through no fault of their own.
As legislation unfolds and the impact on both your business and insurance programmes comes to light we at NZDIS will provide further guidance.