The AXA PPP healthcare Master Trust. Technical guide

Transcription

1 The Master Trust Technical guide

2 Broadening the appeal of Trusts The Master Trust is brought to you by the the UK s leading provider of corporate healthcare Trusts. We are always looking for opportunities to accentuate the benefit and broaden the appeal of the healthcare Trust funding model to employers. This technical briefing note has been designed to support your conversations with corporate clients who are not presently providing healthcare benefits to their employees via a healthcare Trust, but for whom the financial benefits and advantages of the Trust funding model may be relevant and appealing.

3 How the Master Trust works When is the time right for a new model? What is the Master Trust? So how does the Master Trust operate? Now! In recent years we have been observing the UK healthcare market s developments around tax efficient healthcare funding. We are delighted to introduce to the market the Master Trust, which we believe is an innovative and financially appealing healthcare funding model for many employers either currently providing or seeking to provide healthcare benefits to their employees. In the design and development of this model, we have taken both our extensive knowledge and experience in managing healthcare Trusts and combined this with our learning from prior market developments to deliver a model that offers a more tax efficient funding model to UK employers. The Master Trust Now employers can benefit from all the advantages of a traditional healthcare Trust without the hassle of setting one up and managing it. Master Trust type arrangements are not new to the UK employee benefits space similar models have been used by insurance companies, investment fund managers and consultancies to support employee benefits such as pensions for some years. In simple terms, the Master Trust allows your client to appoint Administration Services Limited as their Trustee, relieving their organisation of the governance obligations and responsibilities which under a traditional healthcare Trust arrangement they would usually incur. As a result, your client will still benefit from the advantages and features of a healthcare Trust, yet with the additional benefits of no Trustee duties, a faster implementation and the absolute confidence that comes from partnering with Administration Services Limited, the leading provider of healthcare Trusts in the UK. In a traditional, healthcare Trust arrangement, your client would independently appoint the Trustee(s) to perform a number of key duties which include (but are not limited to): Setting up the Trust arrangement Setting up a dedicated Trust bank account Ensuring the Trust and associated policies, processes and procedures are compliant from a legal and tax perspective Producing regulatory reports and accounting returns Making exceptional claims decisions Handling any disputes or complaints. Ultimately, the Trustee(s) are responsible for ensuring the Trust runs smoothly both from an operational and legal perspective. The Master Trust enables your client to transfer all these obligations over to us. Employers participating in the Master Trust will be covered by their own deed, which aligns with the master deed, and includes details such as each participating employer s benefit schedule, underwriting terms, and any other unique aspect of their healthcare scheme design. And whilst our Master Trust frees their organisation from the key Trustee responsibilities, they can still benefit from the financial and tax advantages associated with a traditional healthcare Trust. Continued over page

4 ...continued Who manages the Master Trust? The Master Trust enables your client to appoint our specialist Trust administration arm, Administration Services Limited, as their corporate Trustee. The Board of Administration Services Limited has appointed a Trust Management Committee comprising of experts from our commercial, finance, customer service, clinical, sales and marketing teams to oversee the Master Trust. Therefore your client can be confident our extensive knowledge and experience is being drawn upon to effectively administer and manage their organisation s membership of the Master Trust. How does the Master Trust work from a governance perspective? The Trust Management Committee of Administration Services Limited will be assigned all the traditional obligations of the Trustee for the administration and day-to-day running of the Master Trust. These duties and liabilities will still be undertaken under the governance of common law and the Trustee Act Responsibilities of this committee will also encompass the Trustee s fiduciary duties to the beneficiaries of employers using our Master Trust, which involves ensuring that all decisions made are for the sole benefit and interest of the beneficiaries. Our expertise in this field means we are fully conversant with the regulations and intricacies attached to healthcare Trust administration. Employers can put their faith in us to manage their scheme diligently. How does the Master Trust work from a financial perspective? Each employer participating in the Master Trust has their own fund to ensure contributions that relate to each employer using the Master Trust are fully ring-fenced and accounted for on a client-by-client basis. The main financial benefit of the Master Trust to your client, the employer, is the mitigation of some or all of their annual claims funding from the Insurance Premium Tax (IPT) levy applied to contracts of insurance; we will pre-agree on an annual basis what proportion of their annualised claims funding will be contributed to the Master Trust and thus will not be subject to IPT. See over the page for more details on the financial perspective. The Master Trust allows your client to appoint Administration Services Limited as their Trustee, relieving their organisation of the governance obligations and responsibilities which under a traditional healthcare Trust arrangement they would usually incur.

5 Illustrative financial breakdown In a traditional insurance model, the insurer is paid a premium within which there will be both a level of notional claims funding as well as both risk and administration charges. Ultimately, the insured model provides the employer with the reassurance of a maximum financial liability i.e. the premium in any one scheme year. Our Master Trust can offer your client this same certainty but in a way that is financially advantageous for their organisation. They could benefit from tax efficiencies through a lower IPT liability (see diagram below). To limit the liability of their fund to unforeseen high volume or high expense claims, a risk charge (stop loss insurance) is put in place with all organisations participating in the Master Trust. This insurance incurs IPT as is the case with a fully insured model and a traditional healthcare Trust. In terms of administration fees due under the Master Trust, given the Trust-based nature of this contract, no IPT would be applied to these fees, although VAT would be applied, as is currently the practice with our corporate healthcare Trust arrangements. In many cases, however, this VAT can be claimed back we recommend your client seek their own independent tax advice on how this might apply to their organisation. Our Master Trust can offer your client certainty but in a way that is financially advantageous for their organisation. Traditional insurance Expected claims fund 2m Claims fund 2m Admin 200k IPT 132k Total cost: 2,332,000 6% Master Trust Expected claims spend 2m Trust fund 1.6m No IPT Risk charge 400k IPT 24k Admin including Trustee fee 220k 6% 20% VAT 44k Total cost: 2,288,000 Total cost with VAT fully reclaimed: 2,244,000 Net saving of the Master Trust versus traditional insurance = 44,000 (or 88,000 if VAT can be fully reclaimed)

6 Commonly asked questions Our client currently funds their company healthcare scheme on a fully insured basis and prefer to have a known maximum liability each year in respect of this employee benefit programme. Can they maintain the certainty associated with full insurance yet benefit from the financial advantages available via the Master Trust? Absolutely we feature a stop loss insurance within our Master Trust model which limits your client s liability should their claims exceed their projected claims fund value. In calculating this, we review a variety of factors including their claims history and the level of risk that their organisation either wishes to retain or transfer, before we establish a realistic value for the proportion of your client s predicted annual claims spend that would need to be funded by the Master Trust (and would not be subject to IPT). With our Master Trust, your client will still benefit from all the financial advantages of a Trust arrangement, including IPT savings and the ability to accrue any unspent monies in the Trust fund back into the Master Trust. By adopting this Master Trust arrangement their organisation will also save time and money as a result of passing the duties and obligations over to us. What comfort can you provide my client as regards the legitimacy of the Master Trust? This is an area that we have been particularly focused on in light of our analysis of alternative, tax efficient healthcare funding models available elsewhere in the marketplace. The Master Trust is a variant on a well-established and well recognised funding style this being a traditional healthcare Trust. This fact offers employers reassurance that the Master Trust is a secure innovation, with long-term viability. Our view is that the clearly outlined criteria for a healthcare Trust, from both a tax and regulatory perspective, are satisfied, making the Master Trust concept one that we are confident will satisfy any level of third party scrutiny and diligence. In addition to our own internal and very experienced insurance and employee benefit tax advisory team, we have sought external legal advice from a well respected law firm as regards the legitimacy of our Master Trust. Subject to a signed non-disclosure agreement, we would be happy to share a letter of reassurance, written by this external adviser, with your client. Your client still has the option to take independent tax and legal advice before deciding to join the Master Trust. For further information or to speak to an expert regarding our Master Trust, please contact your representative. PB47051/06.13 Administration Services Limited, Phillips House, Crescent Road, Tunbridge Wells, Kent TN1 2PL. Registered Office: 5 Old Broad Street, London EC2N 1AD, United Kingdom. Registered in England No