UK - Many employers are considering restructuring their death-in-service benefits in reaction to the single events limits imposed on these group contracts by insurers since the September 11 terrorist attacks, says Watson Wyatt.
Watson Wyatt head of healthcare and risk consulting, David Cross (pictured), predicts one result will be an increasing emphasis on lump sum payments and a potential reduction in death-in-service pension provision.
“Since 9/11, insurers have typically placed single event limits of between £50m and £100m,” Cross said.
“Whilst these are significant sums, for companies with large concentrations of employees there is a risk of a potential shortfall in the event of a catastrophe.”
In light of the limitations, Watson Wyatt is encouraging employers to review their group death-in-service arrangements. Options suggested include spreading death-in-service cover across two or more insurers, changing the contractual arrangements with employees to guarantee benefits only up to the limits of insurability and rethinking the way death-in-service benefits are designed.
“With the onset of pensions simplification, many employers are taking the opportunity to rethink the way death-in-service benefits are structured,” Cross said.
“Death-in-service pensions are increasingly expensive compared with lump sums as well as being generally less tax efficient under the simplification proposals. Giving employees the option to convert death-in-service entitlements to lump sum benefits through flexible benefit schemes could be one mechanism used to reduce or control overall exposures.”
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