Death in Service, should people rely on this?

TEDDYRUKSPIN

I just wanted to start a post as some customers are mis-informed of such a service provided by companies. As you may know, some companies such as the NHS and Universities can provide 3x your final salary as a lump sum tax free life cover.

Too many people are carrying out mortgages and loans, and using this as life cover. From my experience, the so called death in service is a joke and can not be solely relied on.

Eg. £30k salary and single. The company is supposedly mean't to supply the beneficiary with £90k tax free lump sum. Is this true? As you are single, the company is not obliged to even pass anything on. This is discretionary. Do you really think a company has this amount of money to pay out? From experience, the money will not paid out in a lump sum but in small tranches.


Eg. £30k and a family. The company will most likely payout depending on the pot in the company. The will provide a small lump sum and then tranches. More when you have children and depending on age.

Eg. £30k and married but no children. Same as above but a smaller lump sum.


This is from my experience and from seeing customers.

Please note, if you change jobs this amount of death in service can also change.

What I would like to know, is what do you think?

chuckles1066

My company pension provides a death benefit based on length of service; in my case, it's 5x my annual salary.

If I leave, or are sacked or made redundant, that death benefit disappears.

I don't believe anyone would be stupid enough to rely on it as a guarantor of sorts?

TEDDYRUKSPIN

Chuckles, actually as an advisor alot of people rely on this! Trust me! The worse culprits are the NHS staff and University staff!!

I believe you are the minority!

People actually believe the will obtain a lump sum!

Some of my customers are from the police force and I can guarantee that they do not get 3x their final salary! They all receive a small lump sum and a monthly amount which taxed (this is the pension). Not the so called 3x amount.

Very interesting. Please continue the thread. I am trying to educate the population as the only people who understand this are the people who have been through it.

nearlyrich

I had a death in service benefit with my last employer, they had everything documented in the staff handbook and I can confirm that the scheme would pay out a lump sum on production of a death ceretificate of a serving member of staff. I had to submit a list of benificiaries who would get the tax free lumpsum by percentages. I sadly had a colleague who died in service and his widow got 4 x his annual salary as a lump sum and still gets a pension based on the company scheme.

I think people need to be aware of exactly what the company scheme will pay in the event of their death and make arrangements to top up any shortfall.

dunstonh

My company pension provides a death benefit based on length of service; in my case, it's 5x my annual salary.

Unless there has been some rule change the maximum death in service is 4x salary. (noting that I am a specialist investment IFA and protection is something I do very very little of so not ruling out that it is no longer 4x).

Ian_W

What I would like to know, is what do you think?

I don't think - I KNOW BEYOND ANY SHADOW OF DOUBT that you're wrong - from personal experience regarding two of those schemes. And I think you're wrong about the other as well!
The NHS pension scheme:
If you die in pensionable employment we will pay a lump sum equal to 2 years’ pensionable pay.
The Police pension Scheme:
If you die while serving, provided you were a member of NPPS (and had not opted out) at the time of your death, a lump sum death grant of three times your annual pensionable pay at the time will be paid to ....
The USS:
a lump sum of three times your salary together with a pension for your dependants should you die before retirement whilst in employment.

It doesn't depend on the "companies" having the money to pay [last time I looked the NHS and police weren't companies - or AFAIK the Unis], they're defined benefits of a pension scheme which could be sued for, through the courts, if withheld against the scheme rules.

In many cases there will be a taxable pension for dependants in addition to the lump sum death in service benefit.

What I would agree with is not to use this as mortgage protection, not because it won't be forthcoming, but in that position a dependent husband, wife, partner maybe with children to bring up for years will be financially much worse off than before the death. The lump sum can be used to cover some of the lost income of the deceased.

seven-day-weekend

MY LGPS said something similar to that quoted above by Ian W and when I took out a mortgage on an investment property (not my main home which was already mortgage-free), I asked if the clause meant what it said - i.e. that they would pay out in a lump sum equivalent to three times my salary, and was assured that would be the case. My husband's Teachers' Pension Scheme said the same.

Mikeyorks

TEDDYRUKSPIN wrote: »

What I would like to know, is what do you think?

That I'm extremely curious as to who you 'advise'? As based on this post I don't think it's going to be very sound advice.

Most of what you say is demonstrably wrong and such things as

depending on the pot in the company

verge on the ludicrous.

This is a link to the most recent CS scheme. The 'death in service .. with dependants' aspect is crystal clear, as is also ' death in service .. without dependants'. The latter being something your OP suggests is deliberately cloaked in subterfuge? Having read all of the links Ian W posted - the only lack of clarity in this respect ..... comes from yourself?

http://www.civilservice-pensions.gov.uk/scheme_information/nuvos/benefits_for_dependants.aspx

Mikeyorks

That's the 1987 police scheme you've linked to .. the later one (see 2006 link at post #6) is '3 times'.

Retired_I.F.A.

Actually I was a bit hasty in posting which is why I deleted the post. I'm reading it now and it's 4* but only if you leave a spouse apparently.

I'll repost the links in a mo

edit...

Sussed it now. Police officers get 2*salary if a member of the 87 scheme 3* salary if a member of the 06 scheme. (max pension 50% and tfc of 4* salary) knew i'd seen 4* somewhere:D (and it isnt only if you leave a spouse)

So as someone said earlier they pay it or get their butts sued.
http://police.homeoffice.gov.uk/human-resources/police-pensions/1987-pension/retirement-and-benefits/?view=Standard

Ian_W

The '87 scheme was 2x and most serving officers will still be members but killed on duty IIRC was 5x salary.
2006 scheme I linked to is, I think, 3x for all deaths in service.