Protect the assets of your employees and their next of kin
Do you know how many of your employees have completed a death benefit nomination form? We find that this is a common engagement issue, with typically low rates of completion. In the event of the death of an employee without a nomination form, delays, complications and the potential for benefits to go to the estate (potentially incurring tax) can all arise. HR teams can take some simple steps to provide employees with peace of mind that their next of kin will be provided for.
The ongoing COVID-19 pandemic has reminded many individuals of the importance of ensuring that family and dependents are financially secure, should the worst happen.
Many employees have life assurance provided by their employer, that pays out a multiple of their salary should they pass away. Alongside this payment, any pension benefits are also payable, including pension pots from defined contribution schemes. Lump sum payments such as these are typically not subject to inheritance tax and, as a result, can be made tax-free as it is the trustees of these arrangements who decide who should receive any payments
To assist the trustees in making these decisions, individuals should complete a nomination or expression of wish (EOW) form, which indicates to the trustees who the individual would like their benefits to be payable to – though it will be the trustees who make the final decision. These are simple paper or online forms that can be completed quickly with just a few details about the individual and who they want their potential beneficiaries to be. Completing a will can also help trustees decide who should receive any benefits payable.
So far, so simple, and you’d expect most people to have taken action on this. However, we find time and time again that completion rates are lower than expected for nomination/EOW forms. Now this does not mean that benefits cannot be paid out. It means that trustees have to find details on all potential beneficiaries before making their decision, potentially delaying the payment of these benefits. This can be relatively straightforward where there is just one spouse or financially dependent partner. However, many relationships are not that simple, with current and previous partners, children from more than one relationship and financial arrangements that might mean it is hard to establish whether there is any financial dependency on the deceased.
This can become a very personal issue for management, who are acting as a trustee on these arrangements. Put yourself in the shoes of the trustees of a complex case with several potential beneficiaries and multiple ways that the benefits payable could be shared. Do you think they would distribute benefits the way the deceased would want them to be distributed every time? Probably not, but their decision wouldn’t necessarily be wrong based on the information that they are able to gather. Having a completed nomination/EOW form will assist them greatly in their decision-making.
In order to reduce the potential time spent on making trustee decisions, employers can provide peace of mind to employees and thus improve their wellbeing. HR teams should:
- Establish which forms employees have to complete – are there separate forms for life assurance and pension?
- Clearly explain to employees how they can complete these details – is there a paper or online form for completion?
- Remind employees to review and update their beneficiaries from time to time – perhaps going as far as contacting individuals directly after a life event such as marriage, having a child, divorce etc.
- Check what completion rates you have – having electronic rather than paper forms might make this job easier
- Where lower than desired, undertake a campaign to encourage completion – this might involve using your pension provider to contact individuals on your behalf
- Regularly repeat the exercise until you reach the desired level of completion – remember that workforces will change over time, as will their individual circumstances
Ian Barrett – Senior DC Consultant