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Thousands to benefit from DWP U-turn on life cover charge cap exemption

Tens of thousands of people with life cover written into their pension scheme are to benefit from a Government U-turn on how the auto-enrolment charge cap will work.

Workplace pensions schemes that breach the charge cap because of valuable death in service benefits will be exempt from the rules, the Government says.

In the DWP’s response to a consultation on the introduction of a 0.75 per cent cap on default funds used for auto-enrolment, it reveals it will allow employers to breach the cap if defaulting members into schemes with life insurance contracts attached.

The DWP says: “We have therefore decided that those costs which are solely associated with the provision of death benefits should be excluded from the definition of charges subject to the cap in regulation.

“No member agreement will therefore be needed to provide these benefits, as charges associated with their provision will not count towards the level considered for the purposes of the cap.”

Standard Life head of pensions strategy Jamie Jenkins says while such arrangements are no longer common, there could be tens of thousands of people with death in service benefits across the industry.

He says: “It’s a very sensible decision from the DWP. Historically there have been people with death in service benefits written into the pension contract whereby the cost of that life insurance was taken from the pension contributions and as a result would have breached the charge cap and removed the cover.

“It just takes one case where you take someone out of a scheme with death in service cover and the day after they die. You can see how that would potentially be of huge detriment to people.”

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