Death in Service, should people rely on this?

Retired_I.F.A.

Thought you had linked to it but it wouldnt show when I clicked on your text so i googled it. Now you link is fine



Reminds me of the guy who said he did not need life cover he had plenty via his pension scheme.

"How much you got with that?" asked the salesman

"Three years salary" he replied.

Salesman turned to the guys wife and said, Dont worry love, if he dies he reckons he will be back in 3 years.

soolin

Due to a rather unfortunate year among my family and friends I can say that where death in service payments are offered in the contract as a lump sum then that is how they are paid. Not one of the dependents have had the slightest problem in claiming this on production of a valid death certificate.

None of the unfortunate workers have been in the police admittedly, but one was public service and two private companies and it made no difference to the speed at which they were paid out.

Debt_Free_Chick

TEDDYRUKSPIN wrote: »

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.

Whilst I agree it should not be relied upon (up to a point), it's certainly not "a joke".

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.

There is a benefit - it must be paid. There is an obligation to "pass it on". Usually, however, it's not the company's obligation ..... in a private company, it would be for the Trustees to pass it on. For public sector employers, the duty to "pass it on" is in primary legislation.

This is discretionary.

The payment is not discretionary. The selection of the recipients (beneficiaries) is, however. The reason for this is that where the recipients are discretionary, then there is no right to the payment. where there is no right, then the payment is outside your estate for IHT purposes.

In practice, the trustees would look at those who could receive the benefit and then select those to receive it.

Do you really think a company has this amount of money to pay out?

No, which is why it's usually provided from an insurance policy.

From experience, the money will not paid out in a lump sum but in small tranches.

You're not confusing the lump sum with an entitlement to a dependant's pension are you? If the entitlement is to a lump sum, then a lump sum is what's paid out.

If the lump sum is to be split between a number of different recipients, then it may well be paid out "in tranches" ... or rather, just split up and paid at different times, once each recipient is identified.

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.

What you get might well depend on the dependants you leave behind. If you are single, there might be a lump sum only. If you're married or leave a dependant partner, there might be a further lump sum or a separate pension. If you also have children, there might be a further benefit for them.

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

Fewer dependants? Then there are few people depending on you, so why not a smaller benefit? After all, if there's no-one depending on you, who is to receive the money?

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

Please note - that if you leave your employer you are no longer "in service" so you cannot benefit from any death in service provisions. Whether or not your new employer provides death in service benefits is something you need to check out. Many do ...some don't.

Debt_Free_Chick

dunstonh wrote: »

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).

Under the post 2006 rules (simplification! ha!) the maximum amount that can be paid out is the Lifetime Allowance. This can be a mixture of lump sum and dependants' pensions. If there are no pensions, then the maximum lump sum is the LTA ... currently £1.5m

My employer pays out 4x salary to those without dependants and 10x salary to those with dependants. That 10x can be paid out as a lump sum - in practice, we give dependants the option to use part/all of the lump sum to buy an annuity.

TEDDYRUKSPIN

Thank you to all for the contribution.

The point of this post was to provide education to the people who read this. Actually, alot of people are using death in service to cover all matter of death.

3x salary? 5x salary? How much you will receive is only in relation to the amount of years the company or sector believe it will take for a family or person to reduce to a new lifestyle.

As explained the point of the post is to educate and explain to people why you NEVER use this service for any cover towards a mortgage.

Keep it coming.

dunstonh

Thanks DFC, I either missed that one or forgot it. However, I doubt "many" employers will be upping their death in service benefits. Most are going the other way by reducing them.