Corporate healthcare trusts
Advice in 9 key areas:
CORPORATE HEALTHCARE TRUSTS
Many large companies, like Capita Group Plc, have discovered the financial and other benefits of shifting their employee private medical insurance provision from an insurance-based platform to a trust-based platform. Structured correctly from a legal, commercial and financial perspective, benefits include annual cost savings in the region of 20%, tax status quo for both employer and employee, greater flexibility to progressively improve benefits to employees and their families and more hands-on management of claims.
Capita Group Plc Case Study
The Capita Group Plc, a FTSE 100 listed company, had over the years acquired many companies and inherited and merged a number of traditional insurance-based private medical insurance schemes. The company was paying substantial insurance premiums up front at the start of each insurance year.
With an increasing workforce, the company was keen to continue providing this much-valued employee benefit, however, it also wanted to guard against the volatility of traditional insurance markets.
Working alongside Capita Group, insurance lawyers O’Connors LLP explored a number of alternative solutions. The conclusion was that a trust-based arrangement could offer the optimum solution for both employer and employees. Being a trust rather than insurance, the arrangement also fell outside the scope of FSA regulation and, of course, insurance premium tax.
Commenting on the project, Capita’s Group Finance Director, Gordon Hurst said: “We currently have around 28,000 employees worldwide and this number is growing all the time. Before we set the trust up, we had operated a traditional insurance-based scheme. We saw several attractions in a trust. Not paying an underwriter a profit helped us to reduce costs and was obviously appealing to us, but it was not the determining factor.
“What we really liked was that it gave us greater control over the benefits we can offer our staff and, given the cost savings we are now making, will enable us to increase the range of benefits we offer over time. The trust arrangement also gives us greater flexibility to adapt quickly to the needs of our workforce.
“Making a change like this takes careful thought and demands clear thinking, high quality advice. It was critical to us that nothing changed the tax treatment of the benefit-in-kind in the hands of our employees and that our monthly payments into the trust were tax-deductible in the same way as our annual insurance premiums previously were. Without HM Revenue and Customs clearance, we would not have gone ahead.
“We have been very impressed with the transition from our old scheme to the new scheme which has been virtually seamless for both us and our employees. O’Connors LLP even helped us draft our internal announcement to staff to help us make sure everything was spot on.
“I would say that the trust offers us some significant advantages, not least its flexibility, the overall cost savings and the cashflow benefits. It has certainly delivered our objectives thus far.”
The trust was based offshore in Guernsey to take advantage of the resident trust management expertise available and the favourable tax treatment.
The key to the project’s success was the careful coordination of input from all members of the project team, which included accountants, Guernsey lawyers, trust managers, captive managers and third party administrators. Most importantly, there was close liaison with the company’s own insurance, human resources, finance and taxation functions.
The trust was implemented in mid-2006 and, since then, the number of employees eligible has more than doubled. The savings to the company are expected to continue growing year on year.
To explore how our distinctive approach could benefit your business, please contact Nigel Wallis on 0151 906 1000 or contact us.
