How can master trusts help grow the group life market?
We know there are hundreds of thousands of small and medium-sized companies (SMEs) that may be interested in protecting their workforce with a group life policy but that currently have no cover whatsoever.
Our research shows that just 23 per cent of companies with between 50 and 299 staff offer life insurance, yet 53 per cent plan to expand the benefits they offer over the next two years.
Many will be open to the idea of protecting their staff, but the last thing they want to have to do is deal with red tape. This means that to tap into this market we have to make the process as simple and seamless as possible.
Master trusts reduce the barriers to employers providing death in service benefits for their staff by taking away the cost, complexity and administrative burden of running the scheme.
Which companies are most likely to benefit from a group life master trust?
Group life master trusts are particularly useful for small and medium-sized employers, as they are more likely to have limited administrative resources. But there is no limit to the number of employees that can be covered within a scheme held through a group life master trust, which means employers of all sizes can benefit from the administrative efficiencies they bring. Our registered group life master trust, launched in 2013, now covers over 100,000 employees across more than 1,400 employers of all sizes. We are now introducing an excepted group life master trust.
How does a group life master trust help employers?
By making it very easy to set up and maintain life cover for an employer’s workforce. The master trust structure means the trustee, not the employer, carries the responsibility for administering the scheme, and bears the cost of doing so. That means making sure the right level of payment is made to the right people in the event of a claim having to be made and ensuring all tax issues are dealt with correctly. It also means a grieving family will deal with an independent party – the trustee – not the employer, in the event of a claim. The trustee also takes responsibility for anti-money laundering obligations arising from the payment of benefits.
What are the differences between registered and excepted group life master trusts?
The most common form of group life scheme is the registered group life scheme, which is registered with HMRC and written under occupational pension law. As such, any lump sum benefits count towards the individual’s pension Lifetime Allowance (LTA), which currently stands at £1,055,000. Back in 2010 the LTA stood at £1.8m, but today’s lower rate means many more people are likely to be affected by it.
Any employees whose total combined pension and life cover benefits would exceed the LTA will be subject to a tax charge of 55 per cent if benefits are taken as a lump sum. Similarly, any employee with Enhanced, Fixed or Individual Protection against the LTA could lose it if they receive a payout from a registered scheme.
To avoid this happening, employees who risk breaching the LTA or losing their LTA protection can be put into an excepted group life scheme. An excepted group life scheme is not registered with HMRC, but is set up under trust law as a discretionary trust. From the customer’s point of view, both excepted and registered group life schemes do the same thing.
The discretionary trust structure means periodic and exit charges can be levied if the scheme is not administered properly – which is why excepted group life schemes are particularly suited to the master trust structure. Only one benefit basis is permitted for each excepted policy, although it is possible for an employer to have multiple policies for different parts of the workforce.
In both registered and excepted group life master trusts the master trust structure effectively outsources the cost and responsibility of running the scheme to a third party – we have appointed law firm Irwin Mitchell as our independent trustee.
What do employers and employees need to do to set up a master trust?
At MetLife we have made it really easy for employers to be placed on cover – in either a registered or excepted group life master trust. They simply have to fill in a two-page form, sign it and send it to us. The documentation is signed by the trustees straight away and their employees are covered immediately. In the event of a claim being made, everything is done through the trustees, making life simple for the employer.