Scottish Equitable has introduced its pension group life cover for companies that have between five and 50 employees.
This product is a response to changes to the tax regime for defined contribution pensions such as stakeholder schemes and group personal pension plans.
Under the old tax regime, up to 15 per cent of an employee's earnings could go towards life cover under a personal pension. Under the new regime, a maximum of 10 per cent of contributions can go towards life cover, which works out lower compared to the old tax regime. If employers feel the level of cover is not enough, they may arrange additional life cover separately.
Employers can get separate group life cover for their employees from companies such as AIG Life, but AIG does not have the same administration systems in place.The advantage of the Scottish Equitable product is that employers with Scottish Equitable pensions may find it simpler and cheaper to offer life cover through the same provider, because it uses the same online administration system as the pension.
Stakeholder pensions have a maximum annual management charge of one per cent and many personal pensions now mirror stakeholder charges. A one per cent charge makes it difficult for some pension providers to include life cover as it might be too expensive. This could be another reason why the Scottish Equitable plan could become popular with employers, although employers must have a Scottish Equitable pension already.