It is better and cheaper for a company to ensure that employees who are HIV-positive apply for the disability benefits to which they are entitled and encourage them to attend disability programmes.
Many people who are dying of Aids leave their families and themselves in a financially precarious position because they do not know that, as Aids sufferers, they are entitled to disability assurance while they are alive and death benefits after they die.
As a result, HIV/Aids is not having the expected negative impact on the premiums for group life and disability assurance provided by most retirement funds.
This is one of the findings of a recently published report by Metropolitan Employee Benefits which is entitled, The Financial Impact of HIV/Aids on you as a South African.
Nathea Nicolay, the manager of HIV/Aids risk consulting at Metropolitan Employee Benefits, says that the main cause of the current rise in group life and disability assurance is low interest rates and therefore low returns on premiums invested by life assurance companies to pay benefits.
And although Aids continues to scythe through the population with an estimated five million HIV-positive South Africans and a cumulative 1.6 million Aids-related deaths so far, the financial impact of HIV/Aids on disability premiums is generally not large. "This is mainly because HIV-positive employees of companies who have permanent health insurance (PHI) policies and are unable to work are not getting the benefits to which they are entitled," she says.
Nicolay says the reasons for the low number of claims include:
- HIV-positive employees are not always aware of their rights to claim a disability benefit under their PHI scheme or they do not know how to make a claim. Nicolay says you should be informed of the benefits to which you are entitled in your employment contract.
- HIV-positive employees are often afraid to disclose their status and claim their PHI benefits.
- Some employees are entirely unaware of their HIV status.
- Many HIV-positive employees leave their jobs when they are in the advanced Stage 4 of the disease (they are Aids sick) and die within the waiting period of an assurance policy.
But, Nicolay says, group life and disability assurance claims are now showing a steady increase.
Mortality experience on group life assurance schemes in the construction, agriculture, forestry and mining industries has shown an estimated average worsening of HIV/Aids-related cases of between 10 and 15 percent a year over the last five years.
Nicolay says the cost of group life and disability cover offered by your retirement fund is linked to the cost of actual death claims in the previous policy year.
If the death claims have increased as a result of Aids-related deaths, the insurance premium will increase.
If the group life assurance is paid for by an employer-sponsored pension or provident fund, the more money allocated towards assurance premium, the less will be available for your retirement fund savings.
If the group life assurance premium is outside your retirement fund and is offered as an extra employee benefit by your company, the higher premium will be deducted from your salary after tax.
Nicolay says it is cheaper for employers to ensure the well-being of employees who are sick from
Aids-related diseases by encouraging them to attend something like a disability rehabilitation programme, which will enhance their productivity and reduce the death claims on the retirement fund.
She says it is good business practice for an HIV-positive individual "to claim their rightful benefits, receive treatment and return back to work as a fully productive employee".
She says it is cheaper for someone with HIV to take up medical or disability benefits until such time that they can return to work, rather than to rely on their savings to pay for their medical expenses.
She says the financial impact on an Aids-affected household can be severe not only because of the cost of medical care and treatment, but also because of the loss of income as HIV affects mostly adults who are in the prime of their life.
HIV-disability claimants can recover from opportunistic infections and enter a successful anti-retroviral programme with the support of the insurance company's disability managers.
In some cases, an employee may recover sufficiently to go back to work and receive a full salary.
Nicolay says the introduction of the government's national HIV/Aids prevention and treatment programme is expected to increase the life expectancy of an HIV-positive individual who is Aids sick by an average of six years by 2010.
She predicts that many more claims by HIV-positive retirement fund members can be expected. She says, however, the government programme may also reduce disability claims if HIV-positive individuals receive and comply with the anti-retroviral treatment regime.
Hard choices ahead for retirement funds
Retirement fund trustees are facing the stark choice of dramatically reducing your group life and disability assurance, or allowing higher premiums, to reduce retirement benefits by 20 to 30 percent over the next 40 years.
This is one of a number of findings in the recently published Old Mutual Retirement Funds Survey.
The survey says that almost 20 percent of funds have already decided to revise the benefit structures of their funds because of the increasing costs of group life and disability assurance.
Old Mutual Actuaries and Consultants (OMAC), which conducted the survey, says that it is imperative that trustees of retirement funds develop a risk benefit policy statement with the aim of obtaining the best benefit structures while minimising the extent to which retirement benefits are eroded.
OMAC says that about 85 percent of retirement funds offer group life assurance, which pays an average lump sum benefit of two to three times annual salary on the member's death; and disability assurance which provides an
income of up to 75 percent of the member's salary.
OMAC says many retirement funds have placed "caps" on what percentage of your contributions and the contributions of your employer go to paying for group life and disability assurance.
Others are offering a "core" group life and disability benefit with optional extra cover.
Funds that have introduced "caps" have typically reduced death benefits by about one times annual salary. So, if a fund offered three times annual salary on death, the amount has been reduced to two times annual salary.
"Where risk benefit contributions have not been introduced and total contributions are unchanged, the amount going towards a member's retirement savings is clearly less. OMAC estimates that pensions will reduce by 20 to 30 percent over a 40-year period".
Health warning
- All retirement fund members should insist that their trustees have a risk benefit policy statement establishing how and what group risk and life assurance cover will be provided to members. In compiling such a statement, your trustees should take into account the effect of the assurance premiums on your ultimate retirement benefits.
- If there are any changes in the structure of your group life and disability assurance, you should get advice from your financial adviser on any top-up cover you may need. Your adviser must conduct a financial needs analysis to properly assess your situation.
- If your retirement fund does offer you top-up risk cover, you should still check with your financial adviser whether this will be the cheaper option. You must also take into account whether the top-up cover is tax deductible as part of your retirement fund contributions. If the top-up premium is tax deductible, then, even if it is slightly more expensive than an individual life and disability policy, it may be the better option.
- You should always review your financial situation, including your life and disability cover, on a regular basis, particularly if your circumstances change, such as if you get married, have children, become seriously ill, or gain or lose significant income or capital.