The Pensions Regulator has published guidance on the provision of lump sum death benefits.
In the new guidance, the Regulator outlines how and when lump sum death benefits can be provided to members of occupational pension schemes, as well as how the benefits can be provided from schemes which are no longer classed as pensions.
This is because following the introduction of the European Directive on the activities and supervision of Institutions for Occupational Retirement Provision (IORP), into section 255 of the Pensions Act 2004, group life only schemes are no longer considered to be occupational pension schemes.
As under the IORP directive, section 255 limits the activities of occupational pension schemes to “retirement benefit activities” only, and where retirement benefits are defined as a pension, and any extra benefits such as death, sickness and disability benefits, providing they are additional to a pension.
The Regulator says this means an employer which didn’t have to set up a stakeholder scheme because it had a group life only scheme in place, should have put in place a new scheme to meet the stakeholder requirement by 22 December 2005.
Where any employer has been unaware of the change in rules and definition, the Regulator says it should set up a scheme to meet the requirement as soon as possible.
The guidance also makes it clear that where an employee is offered entrance to a pension scheme, the employer can also offer lump sum death benefits as part of the pension package.
But it says the Regulator does not mind if these extra benefits are altered in any way, such as if the extra benefits are either increased or reduced, or if life cover for retired members is continued.
In addition the guidance contains examples which outline different situation which might be encountered, and how the regulator sees section 255 operating in practice.
It suggests any breach of section 255 will see the Regulator taking a “proportionate and risk-based approach”, which will depend on the risks to members’ benefits from the breach of the rules.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7968 4558 or email [email protected]IFAonline
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