Post retirement medical benefits

Ten years ago, the provision of medical insurance to employees into retirement was relatively common. Since then, however, most employers have realised what an expensive commitment this can be, as claims for people over 65 years of age can cost insurers roughly twice that of the average employed person. This has its effect on the overall cost of the corporate medical plan, of course, but for many companies, it also means an annual evaluation of the cost of the liability into the future and an extra entry in the profit and loss accounts.

Not surprisingly, retirees themselves have recognised the value of the benefit and have often been reluctant to accept whatever incentives their former employers may have offered to get them to give up their entitlement. A recent development may help to change this situation. We understand that, as from 6 April 2006, any PMI benefit provided by an employer to retired employees will be treated as a benefit in kind and taxed accordingly. This is a change to the prevailing practice of most tax offices, which has been to ignore post-retirement benefits as a benefit in kind. As with current employees, the tax will fall on the premium or contribution rather than the value of claims.

At this stage, the HM Revenue & Customs has only issued draft regulations for consultation, so precise detail may change, but we further understand that employers will have to make a return to the Revenue giving name, national insurance number and value of the benefit for all retirees receiving this continued benefit.

This development adds to our belief that post-retirement benefits can be removed with careful handling and a clearly developed strategy.