03 July 2006
The Pensions Regulator has issued guidance on providing lump sum
death benefits.
The guidance on providing lump sum death benefits sets out under
what circumstances lump sum death benefits can be provided for
members of occupational pension schemes and where lump sum death
benefits can be provided from such schemes in the absence of the
provision of pension benefits.
It also clarifies that, following the recent amendment of the
definition of 'occupational pension schemes' and section 255 of the
Pensions Act 2004, group life only schemes are no longer considered
to be occupational pension schemes under legislation or for the
purpose of regulation by the Pensions Regulator.
Therefore, an employer that did not previously have to designate
a stakeholder scheme because a group life only scheme was in place
will now have to meet the stakeholder designation requirement.
Employers affected should have put a stakeholder scheme in place by
22 December 2005 (three months from the date the amended definition
had effect), and must certainly take steps to do so without further
delay if they were previously unaware of the position.
Where an employee is offered membership of a pension scheme for
pension benefits it will be acceptable for the employee to be
provided with lump sum death benefits as part of that package. It
does not affect the regulator's view if such benefits are increased
or reduced. The continuation of life assurance cover for retired
members would also be acceptable.
The guidance also contains example scenarios illustrating
situations which may be encountered in practice and explaining how
the regulator sees section 255 operating.
If the regulator is notified of any breach of section 255, it
will take a proportionate and risk-based approach to this, based on
the risks to members' benefits caused by the breach concerned.
