Shortfall: Jean Sheaves’ £1,300-a-month policy payments stopped on her 60th birthday
Thousands of workers struck down by sickness are finding they were sold income protection insurance that could run dry before they can collect their state pension, Money Mail reveals today.
More than 1 million Britons have their own income protection policy and 2.5 million are part of group cover schemes offered by employers.
The policies were commonly sold to last until state pension age — 65 for men and 60 for women.
But, with the Government raising the retirement age for men and women, it means thousands of policies will end before those depending on them can collect their pension.
And policyholders facing financial crisis have told Money Mail they had no prior warning from the Government or their insurer.
The oversight will hit women the hardest as some could face an income gap of six or seven years.
Jean Sheaves, 64, relied on insurance payments after she developed multiple sclerosis and became too ill to work at the age of 40.
But when her £1,300-a-month policy payments stopped on her 60th birthday, she also found her state pension age had shifted to 66.
She says: ‘I was not expecting to have this black hole of no money coming in for six years. I can only blame the Government for this. I had no notice.’
The mother of one walks with a stick, suffers constant pain and has eyesight, hearing and dexterity problems.
Her husband, Paul, 66, died from a rare type of lymphoma in September. Jean has since been relying on their savings until she can claim her pension in 18 months’ time.
She receives £443 a month in employment support allowance, a £100 bereavement allowance from the Government and £300 a month from two of Paul’s private pensions.
Jean, from Allhallows near Rochester, in Kent, says: ‘I am having to use the money we had saved to do things in our retirement to cover my bills. It is so unfair.’
Jean worked for a local protection firm that took out the policy for her with the Permanent Insurance Company, which was taken over by LV= in 2001.
The Pensions Act 1995 introduced plans to raise women’s state pension age from 60 to 65 to match that of men.
More than 1 million Britons have their own income protection policy and 2.5 million are part of group cover schemes offered by employers
The Government later said the state pension age would increase for men and women to 66 by October 2020. It will rise again to 67 between 2026 and 2028.
The latest insurance industry figures show 28,398 individual income protection claims were paid in 2017 and 4,811 new policies were taken out.
One Money Mail reader says he chose to pay for income protection up to his 65th birthday after speaking to a financial adviser when he took out his mortgage in 2005.
The construction worker, 58, paid more than £40 a month before he was diagnosed with vasculitis, a blood vessel condition, in 2015. He has since received £1,350 a month through the policy.
But, while the insurance cash will end when he is 65, he will not get his state pension until he is 67. The father of one, who asked not to be named, says: ‘I am trying to make provisions, but who knows what is around the corner?
‘If the Government has moved the goalposts, then [the insurers] have to move with them. I took the policy in good faith. If I’d known about the change, I would have taken it to 67. It is causing a lot of grief and hardship.’
Pensions expert Baroness Ros Altmann says the pension age rise has had unforeseen wider implications: ‘It is dreadful. People cannot just magic up money when they are ill.’
Alan Lakey, an industry expert in critical illness cover, says it had been the ‘norm’ to sell policies up to age 65: ‘[The new state pension age] was never a problem until five years ago and it never entered the minds of insurers. Most people are unaware their plan now does not fit with their retirement age.
So what has gone wrong?
Income protection policies are designed to pay out if you are too sick or injured to work.
They were commonly sold to run until state pension age (65 for men, 60 for women).
But the Government is raising the retirement age — so men and women must wait until 66 to collect their state pension. It rises again to 67 between 2026 and 2028.
This means those claiming on their income protection policy will see the vital insurance payments end abruptly when they turn 60 or 65 — then face a long wait without income until they can collect their state pension up to six or seven years later.
‘The real problem here is the Government — when it makes changes such as this, it doesn’t talk to the insurers.’
The Department for Work and Pensions (DWP) says it sent letters to 1.2 million women between 2009 and 2011 ahead of the change to their state retirement age.
From 2012 to 2013, it sent further letters to more than 5 million people, warning them their retirement age was to rise to 66.
While healthy policyholders can extend their cover until they retire, those who have already claimed are unlikely to find a firm willingly to insure them.
Group protection insurer Unum estimates 40 per cent of its policies provide cover only until an employee turns 65 — meaning that there could be 750,000 workers in the UK with income insurance that will end at 65.
Unum now offers new and current customers a ‘dynamic’ policy option so the insurer will cover the cost if an employee claiming on the policy has their state retirement age changed.
A DWP spokesman says there was ‘extensive consultation’ ahead of the changes to the state pension age, including with the Association of British Insurers (ABI). He adds: ‘The Government decided more than 20 years ago to make the state pension age the same for men and women and this has been clearly communicated.’
An ABI spokesman says: ‘No one can predict their future needs or the financial support that may be available. So it is important to get expert financial help and to regularly review how changes in your personal circumstances, and any state support, may impact on you and your dependants.’
A spokesman for LV= says: ‘We update income protection policyholders to let them know about changes to premiums and cover amounts, but we don’t generally contact them to update on changes in government legislation.’
Insurers say customers should regularly review their policies — especially if they have had a change in circumstances.
Campaigners won a judicial review at the High Court in June after arguing that 3.9 million women born in the 1950s were not properly warned of changes to their state pension age.