Throughout 2019 SMEs have experienced a raft of complexities and uncertainties that could affect their businesses.
In the first half of 2019, we saw the minimum contribution on auto-enrolment schemes rise to 8 per cent. In addition, the minimum wage increased by nearly 5 per cent in April 2019 for over 25s and above inflation for under 25s. Meanwhile, personal tax allowance changes benefitted employees but represented more change for employers.
In the second half of this year, we’ve also experienced a new Brexit strategy as well as a new Prime Minister and Chancellor and a tough economic climate.
As uncertainties continue, the focus should ideally be on what SMEs can be certain about and how they can help their employees navigate difficult times.
One way of doing that is through effectively managing workplace benefits, such as group life cover.
Employee death benefits are often linked to a company’s pension scheme. These are known as registered group life schemes and are governed by pension scheme rules – or the employer can decide to use standalone group life trust and rules. This is not the case for excepted group life policies (EGLPs), which alwayshaveseparate group life trust and rules.
Therefore, employers could have administrative duties to fulfil on the group life schemes as they can act as trustees of either the pension schemes or the standalone group life scheme.
When employees join a company and in turn enter their death-in-service benefit schemes, they nominate any beneficiaries they would like to leave their lump sum to, should they die while in employment.
Employers often neglect to remind employees about the need to review their nominations, which they should do on an annual basis. Most employers in the SME space will not necessarily have a dedicated HR department so they often have other things to think about than remind employees of the need to keep their nomination forms up to date.
When an employee dies, often employers find that the nominated persons can’t be found, have died or the relationship has changed. These scenarios often lead to a dispute between relatives or partners.
In the first instance it can be tough having to track down potential beneficiaries and SMEs are unlikely to have the time or resources to work with their insurer to do so.
In addition, legal issues such as probate can come into play once the correct person is identified – meaning that SMEs will potentially have to pay for legal advice.
In addition, calculations are required to determine the payout for registered group life (RGL) schemes as a percentage of the deceased’s standard lifetime allowance. Again this can be difficult for SMEs to administer on their own without in-house expertise.
Group life master trusts can provide a much simpler solution to the problems set out in this article as they outsource these issues from the SME to an independent trustee company appointed by the insurer. They are set up for multiple employers and work under a single trust arrangement.
Employers do not have to set up a stand-alone trust as the responsibility for governance sits with an external independent trustee company.
This is much more affordable and simpler for SMEs, as well as providing the reassurance that the scheme is run and managed correctly in line with legal and regulatory requirements.
With more employees participating in workplace pensions as a result of auto- enrolment, we believe that they will expect group life benefits as part of any workplace benefits package.
We would recommend that SMEs review their life cover arrangements with their adviser and discuss whether a group life cover master trust arrangement could be more suitable for their workforce.
In today’s uncertain economic climate, this is something that SMEs can feel less uncertain about.
- Mark Jarred is group protection product manager for Aviva