A quarter of a million NHS staff who opted out of its defined benefit (DB) pension scheme only have life cover of £60,000 in the event of Covid-related death, and some non-front line staff have no life cover at all.
The £60,000 bereavement payment announced by Health Secretary Matt Hancock this week is considerably lower for most NHS staff than the four times salary death in service cover level that is typical amongst private sector workers covered by life insurance offered by their employer. Almost 10 million private sector workers are covered with death in service benefits.
The issue highlights the extent to which public sector workers that have opted out of DB schemes often have no life insurance because death in service payments are linked to membership of the scheme. Historically the number of workers affected has been low, but increases to employee contributions to DB schemes has seen a sharp increase in the number of those opting out.
A Freedom of Information Act request by the Health Service Journal in 2018 found that 250,000 NHS staff had opted out of its DB pension scheme in the previous three years.
The Department for Health & Social Care says around 90 per cent of staff are members of the NHS pension scheme.
The Health Service Journal also reports that NHS managers who die during the pandemic will only qualify for the £60,000 bereavement cover if they pass a ‘situational test’ meaning they must have worked in suspected infected areas within 14 days of developing the disease.
The average lump sum death benefit paid out by life insurers was around £130,000 in 2019.
The families of NHS workers who are members are the scheme will benefit from both the £60,000 and the death benefits under the scheme, which comprise a payment of two times salary plus a death in service pension, bringing DB scheme members broadly in line with private sector insured workers.
Canada Life Group Insurance marketing director Paul Avis says: “Providing a life assurance benefit shows how important this benefit is becoming. Not only for frontline and NHS workers but for many people who are asking, ‘What if I were to die, or my partner – how would we survive?’
“Many NHS workers get 2x salary as a lump sum death benefit but also a spouse’s / partner’s pension on top of this.
“With the 2019 average insured lump sum death benefit being approximately £130,000 but with only 240,000 people covered by insured death in service pensions, across 1,928 employer schemes, it would be unfair to make a ‘like for like’ comparison between the NHS death benefit scheme and the private sector. Taking a broad average, assuming many private sector schemes are providing a traditional 4x salary death benefit, to give the £130,000 average lump sum benefit, and NHS average salaries being £37,500, the average new NHS lump sum death benefit payable would be £135,000 -£75,000 + £60,000, which would bring the lump sum death benefit broadly in line with the private sector. However, with the spouse’s / partner’s pension payable on top of this, the new scheme actually means public sector workers would be better protected on death, in the short term, than private sector ones as in addition to the lump sum benefit an NHS worker’s beneficiaries would also get an on-going income.
“However whilst NHS DB scheme members’ benefits are at the top end of the scale for supporting families when the worst happens, other sectors covered by the new benefit are not. Specifically many social care staff are not in the same types of schemes with private homes sometimes only offering auto-enrolment defined contribution pensions, often paying minimum wage with few other benefits, and so this will be a real boost to some of the most exposed in the workforce. This is also true of those that have returned to the NHS and so will not have the same benefits, those working in the NHS from overseas and those not members of the NHS pension scheme.
“Whatever the outcome of the ‘life assurance’ scheme, it is clear that the importance of death benefits and consideration of the loss of a loved and one and family member are high on the agendas of many of the population.”