HR pensions spotlight | Death-in-service benefits

Contact trustees/providers

This is the starting point. If the employee was a member of your life assurance scheme, then a lump sum will usually be payable from the scheme to their spouse, civil partner, co-habiting partner, dependants or relatives. The scheme might be a group life assurance scheme, an "excepted group life policy scheme", or a "single member relevant policy" scheme. In each case, you will need to contact the scheme trustees to tell them of the member's death.

If the employee was a member of your or one of your pension scheme(s), you should also contact the pension trustees (if it is a trust-based scheme) or provider (if it is a contract-based scheme) of that scheme to tell them of the member's death. The benefits payable and people who might be eligible to receive them will depend on the scheme rules. Benefits could be in the form of a lump sum and or pension.

If the employee was enrolled in a defined contribution pension scheme and was under the age of 75 at death, the employee's defined contribution (DC) pot would normally be available for distribution at the trustees' or provider's discretion and on a tax-free basis. The provider or trustees would follow the same process explained below for distributing the employee's DC pot.

Once you have contacted the trustees or providers of these schemes, they will be able to check what benefits are payable and who the potential beneficiaries are. They might ask you to confirm the deceased's next of kin and correct address so that they can contact the next of kin to ask for more information about the deceased's dependants and beneficiaries and take matters from there.

Take care with questions

If the employee's next of kin or anyone else asks you what benefits are payable and or who might receive them (and when) then it will usually be safest to refer these questions to the scheme trustees or provider(s) and explain that this is what you have done. This is partly because mistakes or misunderstandings can cause additional upset and lead to complaints, and partly because the person asking might not actually be entitled to know the answer. The scheme trustees or provider will be able to filter requests and provide a suitable answer.

In particular, if you are holding an expression of wishes form, it is important to remember that this is not a legally binding document but is simply a guide to assist with the exercise of discretion. It is not appropriate to treat an expression of wishes form as an instruction and its details are for the trustees of the scheme to consider.

The trustees/provider will need to decide to whom to make payment(s) in accordance with the scheme's rules and, where lump sums are concerned, these will generally include a large category of potential beneficiaries. The trustees will need to consider the pool of eligible beneficiaries and determine how to distribute the lump sum, and whether this is to one or more of the potential beneficiaries. The approach trustees should take is explained further below.

If a data subject access request is received requesting access to personal data, this should be immediately referred to the relevant internal contact/officer.

Group life assurance schemes

If you have a stand-alone life assurance (or death-in-service) scheme, then the trustees of the scheme might be the employer itself, or another group company. The company's board might however have delegated the task of investigating the family circumstances of the employee, and potentially authority to determine the distribution itself, to a committee or the HR department. The scheme rules may include a provision to this effect, so it is important to review the scheme rules to ensure the correct process is taken.

Exercising discretion

The fact that distribution involves exercising a discretion means that some legal duties apply.
Trustees (or those authorised by them to exercise their discretion) need to:

• Inform the insurance company that the member has died.
• Check what benefit is payable under the scheme's rules.
• Check that the insurer will pay the full sum (if not, you might need to take legal advice on how this affects the amount to be paid and what options there are).
• Check the scheme rules to see who is potentially eligible to receive a payment. There is usually a list, or a definition, that lists everyone who is a potential beneficiary. These typically include anyone nominated in an expression of wishes form (see below), the employee's surviving spouse/civil partner, anyone who is financially dependent on the member (or co-dependant) and other relatives, including (but not limited to) parents and children.
• Check for any expression of wishes form.
• Make enquiries of the employee's next of kin to find out which of the potential beneficiaries there are in this case.
• As part of those enquiries, ask who is financially dependent or co-dependent on the employee and ask for evidence of this. You could also ask for a copy of any will, but note that the will does not govern how you distribute the life assurance benefits – it is simply further background information on the circumstances of the employee who died and his family.
• Make sure you understand whether someone falls into more than one category. For example, the rules might say that benefits can be paid to anyone nominated in an expression of wishes form, the member's spouse/civil partner and anyone who is financially dependent on the member. You might have a spouse/ civil partner who falls within all of these categories.
• If you receive conflicting information from different people, investigate further.

When you decide who should receive a payment and how much, you will need to consider "all relevant factors" and ignore "all irrelevant factors". For example, you will need to consider everyone who is potentially eligible under the scheme rules to receive a payment. You will also need to remember that, unless the scheme rules say otherwise, an expression of wishes form is just one factor to consider. You should think about how long ago the expression of wishes was completed and whether the employee's personal circumstances have changed since then (for example, have they married/entered a civil partnership?)

You should keep a record of your decision and the reasons for it in case it is challenged, and take care in how you communicate the decision. If someone you have been in contact with (or anyone else) asks who you have decided to make a payment to, or how much you have paid, think very carefully about whether you should provide that information.

You should also think about whether it would be helpful to take legal advice before you take a decision, communicate a decision, or answer a question. It might be helpful to take legal advice if there are competing beneficiaries or complex circumstances. For excepted group life policies, there may be inheritance tax to consider, depending on for how long the policy has been held.

Check other schemes

If the employee was receiving benefits from any permanent health insurance or long-term disability scheme run by you, you will also need to immediately inform the insurance provider of the employee's death.

How we can help

Legal advice can help you to understand what your duties are, what your scheme rules require, and what you should and should not do. Please contact your usual OC contact or Claire Rankin (details below) if you would like further information on how we can help.