The Pensions Regulator

Paying lump sum death benefits

.

.

.

Considerations

Group life only schemes
The regulator's view is that there is no objection to the establishment of schemes which only provide lump sum death benefits ('group life only’ schemes).

However, it's clear that following the amendment of the definition of ‘occupational pension schemes’ and following s255 of the Pensions Act 2004, such schemes are no longer considered to be occupational pension schemes (under the Pension Schemes Act 1993, the Pensions Act 1995 and the Pensions Act 2004, or for the purpose of regulation by the regulator).

As a consequence, if an employer did not previously have to designate a stakeholder scheme because of a group life only scheme that was in place, that employer will now have to meet the stakeholder designation requirement.

Employers who are affected should have designated a stakeholder scheme by 22 December 2005 (three months from the date the amended definition had effect), and must certainly take steps to do so immediately if previously unaware of the position.
 
Cross-border schemes
If a UK scheme has members in another EU member state who were members of the scheme for lump sum death benefits (and who continue to accrue benefits in the UK scheme and if contributions for those benefits were paid to this scheme), this could result in the scheme being required to apply for authorisation and approval to operate cross-border.

If, however, the contributions were made to a separate life assurance scheme, authorisation and approval would not be required.

If the members are deferred members of the scheme but remain employed by the employer, then contributions to the scheme for lump sum death benefits will not result in the scheme being required to apply for authorisation and approval to operate cross-border if these benefits are calculated by reference to the members’ salaries at the date of deferment.

However, if there is any remaining link to current or final salaries for the calculation of lump sum death benefits, then the cross-border regulations may apply.

.

.

.