Death in service benefits have taken something of a back seat to concerns relating to the employer contribution, regulatory guidance and the State Pension age debate during the past few months. In this article we will shift the focus to death in service benefits and highlight some of the main issues that might arise for employers, administrators and trustees.
What are death in service benefits?
Many employers provide a death in service (DIS) benefit to employees through full or partial pension scheme membership. The DIS benefit will be payable to a member’s dependants in the event of his/her death and it is usually insured with a life insurance company.
Where the insured member dies in service before their normal retirement age, a lump sum not exceeding the greater of €6,350 or four times the deceased member's final remuneration may be provided to their dependents. In addition to the lump sum, an approved scheme may also provide a pension to a spouse, civil partner or specified dependant. The pension payable can be an amount not exceeding the maximum aggregate pension that could have been approved for the member if they had retired on ill-health grounds on the date of death. A spouse's or civil partner’s (but not a dependant's) pension may be deferred instead of being taken immediately.
The pandemic and the administration of death in service benefits
Scheme administrators should ensure that staff are well briefed on up-to-date DIS procedures. Many schemes will have set protocols that need to be met and the circumstances created by the pandemic may lead to delays. Upon notification of the death of a member, scheme administrators should immediately check to see if the member provided a letter of wishes or nomination form. The deceased member’s death certificate should be requested from the solicitor acting for the deceased’s estate. It should also be quickly established whether or not there is a pension adjustment order on record for the deceased.
Trustees and insured death in service benefits
Where a scheme's DIS benefit is provided through an insurance policy, the trustees should check to see if the policy is impacted by a pandemic and whether it contains an “event limit” clause as an event limit will cap the total losses payable under a policy. They are typically expressed either on a per occurrence basis or on an aggregate basis. Trustees should obtain clarification from insurers and confirm if DIS benefits are impacted.
Data Security Issues
The manner in which letters of wishes are stored and the contents recorded should be reviewed. Are they stored securely and in a way and facilitates access to the relevant individuals? Is the data recorded through the retention of hard copy documentation or is the information retained electronically. Letters of wishes should be reviewed on a regular basis to ensure they accurately reflect the wishes of the members. The employer should facilitate employees in this exercise.
Death in service benefits and employees who are temporarily absent from work
Trustees should be apprised of relevant provisions in the scheme governing documentation to establish if DIS benefits remain payable for scheme members during periods of absence or leave. DIS provisions are typically found in the scheme rules and the precise employment status of employees who are temporarily absent from work will need to be confirmed by the employer.
As well as dealing with the tragedy of the death of a family member, the dependents of a deceased employee will need to meet certain immediate costs, such as funeral expenses, and in many instances will face unforeseen financial upheaval. It is in the interests of the scheme’s employer, trustees and administrators to establish the deceased member’s status at the date of death, to ensure that his/her dependents are identified and that the procedure is completed as quickly and as painlessly as possible. Legal advice should be sought where uncertainty prevails so that the DIS process can be managed smoothly.
For more information, contact a member of our Pensions team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.