Whilst it is important for an employer to be seen to provide a ‘good’ employee remuneration package, many fail to properly communicate, manage and control their schemes. This leads to employees’ significantly undervaluing the package and the employer receiving a poor return on their expenditure.
Defined benefit pension schemes usually have an attaching group life assurance and death in service pension scheme running alongside, which provide cover to the current employees and existing scheme members.
As the premiums are funded by the employer and the trustees are focused on the running of the defined benefit pension scheme, we regularly find that the attaching life assurance arrangements can be overlooked.
The administration of these arrangements may not be as robust as under the defined benefit pension scheme, as it is often not monitored or administered with the same level of detail. For example there can be time drag on provision of renewal data and submission to the insurers.
A review can sometimes uncover failure in the membership data provided and in certain instances members’ level of cover.
A review can also uncover the failure of the insurer to provide the correct level of cover in accordance with the trust deed and rules of the attaching defined benefit scheme. This puts the trustees at immediate risk, for failing to insure the necessary levels of cover.
It also allows the employer and trustees to consider the potential restructure of the arrangements, and we are seeing a growing trend to a move to a multiple of salary as replacement for death in service pension benefits.
At Smith & Williamson we provide an insight review service for employers and trustees looking under the bonnet of the attaching group life assurance and death-in-service scheme. Through initial discussions with the employer and trustees we identify a number of key areas for investigation such as:
- A review of the Group Life and Death–in-Service scheme policy benefits against the Trust Deed and Rules to identify any discrepancies and ensure consistency.
- A review of the premium history and unit rate to uncover any anomalies, and identify any tendency for rate creep.
- We identify claim history and determine areas of favourability which could be leveraged to improve terms and provide cost savings.
- We consider change that will ensure the life assurance scheme is aligned with pension legislation & best practice.
We recently carried out such a review for one of our existing clients and highlighted a number of potential improvements that are now being considered these included:
- Potential cost reductions on the existing premium under the group life scheme of over 10%.
- Consideration to replace the existing group life scheme which is a Registered scheme, with an Excepted group life policy.
- Further potential savings on the premium payable for providing death-in-service cover.
- Potential restructure of the death in service pension scheme to provide an additional lump sum equivalent, rather than a death-in-service pension.
Smith & Williamson recognises that every employer with a group life assurance and death-in-service arrangement in place will have a number of different facets and nuances to the structure of the arrangement. This is why our review service is bespoke and tailored to the needs and objectives of the employer and trustees.
With greater insight into the unique challenges and opportunities we can better identify the strengths and weaknesses of the existing arrangement and explain and propose how it could potentially operate better tomorrow.
If you want Smith & Williamson to carry out a review please do get in touch.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.