Death in Service schemes – time to review?

Early on in the Covid epidemic, it became clear that a number of employers were worried about their workplace death in service scheme being overwhelmed by the virus. With limited data available on the danger posed by Covid to employees, company boards had to plan for worst case scenarios and tasked their legal and HR teams with assessing whether death in service schemes would be able to cope with multiple payments in a short window.

The very good news is that, so far, the effect of Covid on the working population has not been as drastic as some feared. Whilst the virus certainly can have serious consequences for employees of working age, so far the data suggests that they are less at risk of dying from it (notwithstanding that some employees who work past the state pension retirement age or have pre-existing conditions will face higher risk).

It therefore seems unlikely now that a spate of Covid fatalities in the workplace will overwhelm an employer's death in service scheme. However, those in-house lawyers and HR leaders, prompted to review their death in service schemes by the crisis, may now have realised that one or more of the following is true:

  • Their death in service scheme is incorporated into the company pension scheme, but pays out into a discretionary trust
  • They (the HR professional or in-house lawyer) are themselves a trustee of that trust, along with other colleagues who may not be fully aware of their responsibilities in this regard.
  • They are (personally) liable for the correct administration of that trust which they know little about, either because it was set up before their arrival or because they don't have a background in trust law.
  • A long time has passed since the death in service scheme was reviewed in any serious detail and it no longer meets the needs of employee or employer.

If any of the above points rings true, then it may be time for a review of the company death in service scheme.

The scope of that review will depend on your specific circumstances, but the top level questions we recommend asking yourself are these:

  • Are the chosen trustees still the right people to administer the trust? Are they comfortable exercising their discretion in situations which may have life-changing impact on a deceased employee's family?
  • Does the structure of the death in service scheme increase the trustees' personal responsibility beyond the norm? How should they address that responsibility?
  • Has best practice around death in service schemes changed at all since the scheme was last reviewed?

The answers to these questions will hopefully give you a good basis on which to engage senior colleagues.

They will also put you in a strong place if an employee does pass away in the future and you become responsible for any death in service payments to their families.

Indeed, administering death in service payments has become a more delicate exercise in recent years, for the same reasons that estate administration has also become more complex. The family unit is evolving and it is not uncommon these days, for example, for an employee to have children by different partners, to forget to update the beneficiary of their death in service benefit (just as they might put off updating their Will) and then for disputes to arise over the money from the scheme when the employee passes away.

For both employers and trustees, it is therefore important that their position is watertight when making payments to a deceased employee's beneficiaries, preventing any disagreement from boiling over into a complaint to the pensions' regulator - or even litigation.

If you're decided on the need to review your death in service scheme but would like some support, we do have trust law experts on hand who have experience of advising trustees of death in service benefit trusts.   

We can similarly review and advise you with regards to any death in service claims to ensure that the trustees are considering all aspects of the claim before making a decision regarding any likely payment to the beneficiaries of a deceased employee and to ensure that the trustees do not inadvertently carry out a breach of trust or expose themselves to potential future liabilities. We can help answer queries such as:

  • What to do when the employee has not completed an expression of wish form, or it is very out of date.
  • What to do when there is a complex family situation or competing claims.
  • What the tax implications will be.
  • What to do and how to pay out if there are minor beneficiaries who are due to receive all or some of the benefit.

If you would like to discuss this further with us, please get in touch with one of the authors – Lisa Weekes and Michelle Seddon.