You have to be of a certain vintage to get the provenance of my headline*. I found myself using the phrase when I was asked for the third time, by three different colleagues, on the same day, to allow an exception to our on-risk process for establishing a group life scheme. The adviser had made four phone calls to argue that a registered scheme did not need a PSTR. What a waste of time!
Surely it would be better to complete the job properly and make sure your client has a properly registered scheme and there is no doubt as to its tax status and access to the real advantages that accrue to the client. That old adviser habit of bantering with providers to get flexibility is really bad in our segment. It creates risk for all parties in the value chain.
For a group life scheme to work properly, and for the client to get value, it needs to be set up within a trust structure that works. This entails a discretionary trust – which delivers three things. First, policy proceeds are kept out of the member’s estate and therefore outside the probate process. Second, it permits benefits to be paid free of tax to both the sponsoring employer and the beneficiaries. Third, and most importantly, it should enable the sum assured to be paid quickly to the deceased employee’s family. However, just because benefits can be paid quickly, it doesn’t mean in itself that they will.
Many schemes don’t have current trustees or a bank account to receive the claim monies. Indeed, it is common for there not to be any beneficiary nomination forms completed by members to help the trustees exercise their discretion. The reality is that the insurer is often ready to pay but the scheme isn’t ready to receive. If an adviser is not thorough in their process of establishing schemes, there is real detriment to both client and the employees’ families for whom this benefit exists.
Several insurers provide master trusts which can help take the stress out of the claim process for the sponsoring employer. To show the importance we attach to getting benefits into the right hands as quickly as possible, we are bringing to market an online nomination of beneficiary facility to complement our own existing master trust. Scheme members will not only be invited to nominate their beneficiaries when they are first eligible to join death benefit schemes, they will also be regularly invited to review and, where necessary, revise their nominations.
Many advisers hesitate at – and some are openly hostile to – the idea of insurers providing a master trust and complementary facilities because they worry that too much of the process being with the insurer weakens their “client ownership”.
Fair enough, but many employers sponsoring these sorts of arrangements in reality do not want to have the responsibility of exercising discretion as a trustee and are frequently frustrated to find that they need a separate trustee bank account or have to give an indemnity for the beneficiary to be paid directly by the insurer.
By all means control all of these aspects. But if you seek to do so and don’t want to introduce risk into your advisory practice, equip yourself with a thorough checklist and ensure you establish these schemes in a manner which results in schemes that are genuinely fit for purpose.
