09th Oct 2019

Scheme changes – how these may affect Life Cover for your employees

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There are currently a number of changes happening within occupational pensions that are affecting the more immediate and potentially higher priority requirement for employee protection.

These changes include many Independent Schools who are considering exiting the Teachers’ Pension Scheme (TPS) and also other pension arrangements (such as multi-employer schemes) which have been implicitly covering employees with Life Assurance and other benefits, but without employers and employees always realising it.

In both of these cases scheme changes – which by their very nature are really only going to impact employees when they retire – mean that a review of the protection benefits that could affect you or your employees at any time is also necessary.

But why review the protection of employees?

Well for one, it could be contractual. If you have entered into an agreement with employees via your pension arrangements to protect them in the event of death, serious illness or inability to work they may be entitled to cover legally.

In any case – morally – who would want to reduce or remove protection that could be unexpectedly required and potentially provide much-needed funds for the paying of bills and the upkeep of dependants, etc.?

Taking the Defined Benefit Teachers’ Pension Scheme as the clearest example of change that affects protection, there is currently a large focus on alternative (most likely Defined Contribution) pension options and how these will affect both employees and independent schools. However, very little comment has been made about the potential loss of 3 times salary lump sum death benefits, dependants’ pensions (for spouse, civil partner or children), or the provision of ill health retirement that is also in place with the TPS.

All of these additional benefits can be replicated, but at what, and who’s cost? This second question is particularly relevant to pension schemes where life cover has been provided by the pension provider implicitly as members have generally been paying for this cover, but likely won’t have been aware of it.

So, if you are a school that is planning to leave the TPS, are you comfortable in passing on the cost to the employee – even though they weren’t fully aware they were paying for it in the first place?

In terms of the costs, there are numerous options here. Some pension providers are offering blanket terms – but the protection benefits don’t have to come from the same company that is providing the pension scheme. And if they do, how do they compare to the rest of the market, both in terms of cost and also of course in terms of value for money?

Are the benefits of these schemes as good as those available in the general market? What can be done about employees who are already off work or seriously ill? Do your Employees want 3 times life cover or could you be more flexible in how this is covered, could you possibly offer more (or even) less to suit the circumstances of the individual concerned?
Questions, questions, questions…..

If you need help in this area, please do let us here at Broadstone know as we can combine both pension and protection reviews to conduct a fair assessment of what’s right for you and your employees.