The recent furore over the claim for pension rights by the common-law widow of an SAS officer killed on duty masks a much wider issue of the definition of spouse or dependant used by occupational pension schemes and annuity providers.
An understanding of this wider issue can help many clients, in particular those with preserved pension benefits and those considering entering into a drawdown contract in preference to purchasing a conventional annuity.
Whether or not pension scheme trustees can pay pension benefits to a surviving partner depends first of all on the rules of that particular scheme. The latest survey published by the National Association of Pension Funds reveals that 12 per cent of pension schemes in the private sector flatly refuse to pay a pension to unmarried partners on the death of a pension scheme member.
Of the schemes that will consider such a payment, 49 per cent leave it to the discretion of the trustees, 25 per cent stipulate the survivor must be able to demonstrate financial dependency on the deceased to be able to claim payment while only 5 per cent say they will make the payment as a matter of course.
How they define a common-law partner surely raises problems. Strangely, 8 per cent of schemes say the issue has never arisen (have they really never had a claim from a common-law partner?) while the remaining 5 per cent give some other answer.
In the public sector – including, the armed forces scheme which is the subject of the current controversy – 57 per cent of schemes flatly refuse to make a pension payment to a surviving common-law partner, with 43 per cent spread roughly evenly between the other responses quoted above.
Where, as in the armed forces scheme, the rules simply do not permit such a pension to be payable in these circumstances, the trustees clearly have no discretion, no matter how obviously deserving the claimant's case.
Only where the scheme rules permit discretion can this be exercised – an obvious point but one which appears to have been missed in the current media frenzy.
What has this got to do with financial advisers? When considering the possible merits of a transfer of preserved pension rights, the scheme's practice in this respect should be identified where the client is in a common-law relationship and does not intend to get leg-ally married.
If the scheme refuses to consider payment of pension benefits to common-law partners, perhaps this is a positive indicator in favour of a transfer.
A similar issue arises when considering transferring away from such schemes (which include many money-purchase schemes as well as final-salary schemes) into drawdown, where no such restriction in definition exists and the client can nominate whoever he or she wishes.
The next media hype, when the issue of common-law partners has been done and dusted, will without doubt be the issue of pension rights for surviving same-sex partners.
The NAPF survey reveals that 50 per cent of schemes in the private sector and a massive 77 per cent of schemes in the public sector staunchly refuse to consider paying pension benefits to these claimants.
I would strongly suggest that this issue is borne in mind by financial advisers in the same way as I have outlined above when dealing with homosexual clients.
A little bit of crystal-ball gazing. It is now possible in many other European countries for homosexual couples to formally register their relationship or to get legally married. Once registered, in general, these couples then gain most or all of the legal rights of married couples of the opposite sex, including taxation and pension benefits.
I would like to stake a little bet that we will shortly import the idea of the register. If and when that time comes, advi-sers with homosexual clients should ensure they are aware of the tremendous additional pension (and inheritance tax?) benefits to be gained by registering their relationship in the prescribed manner. Watch this space.
SRCE: Money Marketing
SCTN: Broker Review
HDLN: It's a wrap
Norwich Union has introduced a cafeteria-style group protection plan.
Looking at how Business Benefits @ Norwich Union fits into the market, Humble says: “There is a growing market for group protection plans for small companies. This package is aimed at this market, particularly in the 30 to 50 employee sector, but it is also unusual in that it can cater for as low as three employees.”
Robinson says: “Benefit consultants have been crying out for bespoke benefit packages for years. The only effective way to deploy these services is using a composite package which retains complete flexibility for the client, both at corporate and individual employee level.”
Dilke-Wing says: “There appears to be a growing trend among protection offices to issue all-encompassing benefits packages and, in this respect, Norwich Union has opportunely rebranded what most of its constituent parts were doing before the CGNU merger.”
Looking at the cover available, Robinson says: “As Norwich Union's first attempt at a packaged product, it is comprehensive and looks after the core benefits most employers are seeking. It could, however, have included an insured widow's pension benefit and spouse's extension for the group life cover.”
Dilke-Wing questions the absence of critical-illness cover but Humble thinks the package meets the protection needs of most group schemes. Searle says: “It offers comprehensive cover with the combination of protection plans on offer.”
Identifying the types of client for whom the plan is suitable, Dilke-Wing says: “The package is suitable for two types of corporate client – the employer who currently provides nothing and wants to keep everything with one insurer and the employer who wants to consolidate existing disparate arrangements.”
Robinson says: “The plan is most suitable for the small to medium-size employer with up to 500 employees which requires a very flexible and modern benefits package where the employee has freedom of choice but at a reasonable price. This enables them to compete on a level playing field with the bigger employer, which may have much bigger human resource facilities and more internal depth.”
Moving on to the main useful features of the plan, Searle says: “Should an employer express interest in one type of benefit, then all four can be suggested to offer a complete package from one provider.”
Robinson says: “If all aspects of the plan are implemented, an employer has a robust, comprehensive package which will lead to a number of results. First, employee satisfaction, as the plan will appeal throughout the whole population profile. Second, the ability for the employee to change the package as their lifestyle changes and, third, one point of administration at the three levels of employer, adviser and product provider. Also, employee retention should be improved as the contract becomes more competitive.”
However, Dilke-Wing says: “It is difficult to find any strong points to the plan. I suppose the brochures are quite nice and centralising all benefits with one insurer may suit some clients.”
Assessing the drawbacks to the plan, Robinson says: “There is no insured widow's pension provision as part of the business benefits and there is no spouse's extension on the group life cover.”
Humble says: “It is not really a plan, just a wrapper for the four underlying plans, which are fairly standard, except for Pension Guard. The latter is not a waiver-of-contribution benefit, it is just accident, sickness and unemployment, with unemployment cover being optional and benefits payable for a maximum of 12 months.”
Searle says: “This is actually four separate contracts requiring four individual proposals and, therefore, four policy documents. Norwich Union does not appear to offer group critical illness, as do some other companies. Lastly, no discounts are given if more than one segment is selected.”
Evaluating the reputation of Norwich Union in the market, Searle regards it as a well-known and respected conglomerate, while Humble says: “It is a very strong brand name, well recognised by clients and employees.”
Asked whether the commission is fair and reasonable, Searle replies: “Far from it. The commission offered is most unattractive compared with separate plans offered elsewhere. If the package was all in one, the premiums were competitive and the cover wide, then it may be appropriate for an IFA to charge a fee to make up for the low commission.
“But how many IFAs will wish be become involved in registering with the General Insurance Standards Council for a range of products that they will become involved in only rarely?” Dilke-Wing says: “This is not detailed in the literature but, judging from the commission level on the ASU policy, I do not suppose it is any better than the standard derisory levels that group protection schemes always pay.”
Commenting on the product literature, Searle thinks it is smart-looking, clear and concise, while Robinson regards it as very good, with general appeal to most employees.
Humble says: “It is okay for each product within the plan but the literature which is meant to pull it all together into a package does not succeed in doing so.”
Summing up, Searle says: “Clearly, it is important for an IFA to be able to offer these benefits as an addendum to the stakeholder scheme or group money-purchase scheme. However, I am not convinced this package of four separate plans from Norwich Union would provide the best cover at the most competitive cost.
“Surely, the plans could have been offered all together with one application form? But that cannot happen while we have the ridiculous situation where some products offered by IFAs are regulated investment products, others are non-regulated protection products and yet others are general insurance products coming under GISC regulations.”
Scott Robinson, Director (group business), TBO Corporate Benefit Consultants Mike Humble, Regional director, Heath Lambert Financial Services Martin Dilke-Wing, Director, Morgans Independent Advisors,Gordon Searle, Director, Amor Searle