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Life Cover Only Members: Basics

Background

Since 22 September 2005, it has been unclear whether it is possible for occupational pension schemes to continue to have life cover only members as a separate category of membership. This is because an “occupational pension scheme” can only carry out activities which are "retirement-benefit activities" and provide death benefits if they are ancillary or supplemental to those activities.

Guidance

Guidance from the DWP was published in February 2006, but schemes were advised to wait for the Pensions Regulator’s guidance before taking precipitous action. The Regulator’s guidance was finally published on 30 June 2006.

Conclusions in brief

• A life cover only scheme will not be an “occupational pension scheme”. This affects the stakeholder exemption (please see, Life Cover Only Members: Stakeholder exemption).
• An occupational pension scheme can provide life cover benefits for individuals in certain circumstances. (please see, Life Cover Only Members: Quick Reference Table).
• However, one tricky issue remains: can schemes continue to provide life cover benefits in one scheme, whilst employees have the option to join another scheme? (please see, Life Cover Only Members: Provision of life cover in separate scheme).