Is it better to pay for your employer’s medical cover or self-insure in retirement?

Alongside all the major planning concerns you might have when retiring, there are also many micro-decisions you have to make when finally giving up work.

From whether you should buy the company car, to continuing to pay for a work-funded gym membership, these are smaller but still significant choices that will crop up as you look to settle into retirement.

One such concern that we have recently had a few clients speak to us about is whether to start paying the premiums for your employer’s medical cover, or whether to let it lapse and self-insure by setting money aside instead.

There are certainly benefits and drawbacks to either approach that you may want to carefully consider before you make a decision.

Discover a few of these here to help you make as informed a choice as possible.

Staying with your workplace scheme’s “group leaver’s policy” can be a convenient option

When you retire from a role that includes private medical insurance (PMI), you will often have the option to proceed with the scheme’s “group leaver’s policy”.

This generally allows you to maintain your current level of cover – including any pre-existing medical conditions – with the provider you have been with during your working life.

Clearly, this is a convenient option. You’ll retain access to the same benefits you’ve always had, which could help you to stay healthy throughout your post-work life.

You may also want to know that you have PMI to avoid the wait times associated with the NHS.

Indeed, according to Healthwatch, the waiting list for specialist clinical care or surgery was 7.22 million people in February 2023. Meanwhile, 92% of appointments require waits of up to 46.2 weeks.

So, knowing that you can access healthcare services when you need them can be hugely reassuring.

It’s worth noting that not all workplace schemes have group leaver policies. Make sure you check with the provider or your employer first.

Of course, if there’s no group leaver policy with your workplace scheme, you can also search for other providers that offer PMI to people in your situation.

Your premiums with your employer’s cover may be higher than necessary

However, just because the cover remains the same with the group leaver’s policy, it doesn’t mean this is the most cost-effective option for you.

According to figures published by This is Money, PMI could cost the average 65-year-old couple at least £300 a month in retirement. That’s £3,600 a year for cover that you may not even need to rely on, and premiums could be even higher if you have a pre-existing medical condition.

You’ll now be paying for this yourself, rather than your employer doing so. This may be more expensive than you are prepared for.

Additionally, the cover will often be built around your employer’s needs, not your personal requirements. As a result, the underwriting could account for cover that you don’t actually need, pushing the price up for no personal benefit.

Over time, this could put a strain on your retirement income. You’ll need to factor this cost into your retirement planning to ensure that your pension and other savings can absorb it.

Moreover, as you get older, these premiums may become more expensive, because your risk of sickness and needing to claim typically increases.

Data from myTribe Insurance shows how this can happen. They provide examples of premiums at different ages for cover with a £250 excess, outpatient cover limit of £1,500, and excluding mental health, dental, optical, and travel cover.

In this instance, the monthly premium for a 60-year-old with these requirements would be £110.69. Yet, by the time they turn 70, this could be £179.21. That represents an almost 62% increase in premiums in the space of just a decade.

Again, you’ll need to build these rising costs into your retirement plan.

Self-insuring may seem more attractive and cost-effective

As a result of the factors above, self-insuring – essentially the practice of setting money aside to cover a cost, should it arise – can seem more attractive.

Simply holding a fund of cash in an easy access savings account is certainly a viable option. This way, you can pay for treatment when you need it, rather than having insurance you rarely claim on.

In terms of how much to set aside, the table below shows figures for the national average cost for some of the most common conditions and treatments:

Source: This is Money

As this data shows, while certain treatments are more expensive, it could be more cost-effective to pay for them directly than have insurance that increases in cost over time.

Furthermore, if you live permanently in the UK, it’s worth remembering that you’ll still have access to NHS treatment. So, were you to become seriously ill with conditions such as cancer or you needed a heart bypass, this would be free at the point of access.

Cancer treatment is usually available through PMI, as Healthcare Clarity explains. This could give you access to certain treatment options that you wouldn’t be able to choose on the NHS, as well as other benefits such as having private nursing and chemotherapy in your own home.

Even so, according to Cancer Research UK, treatments for cancer are usually the same, regardless of whether you have it privately or on the NHS.

So, if you didn’t have PMI, you’d likely still be given the same treatment options if you were diagnosed with cancer.

In many cases, you may also be able to have expensive procedures such as hip or knee replacements carried out on the NHS.

So, even though you might not be able to make use of these services for elective treatment or non-life-threatening conditions, you will still be able to use healthcare services when it matters.

The right choice will come down to your personal circumstances

Ultimately, the right decision will come down to you and your personal circumstances.

If you have any chronic conditions and regularly require treatment, keeping your PMI in place could be sensible.

Similarly, even if you don’t have such conditions, you might appreciate the peace of mind of knowing that you could quickly access healthcare services should you need them.

Equally, self-insuring is a perfectly valid and potentially cost-effective choice, only paying for care when you need it. You might also be sufficiently reassured that the NHS will take care of you, should you become seriously ill.

Whatever you decide, it’s important to review your finances to ensure that your choice is affordable and makes sense for you.

Get in touch

If you’d like assistance organising your wealth for the future, we can help at Britannic Place.

Email info@britannicplace.co.uk or call 01905 419890 to get in touch today.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Note that financial protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse. Cover is subject to terms and conditions and may have exclusions.