The last two years have seen a dramatic shift in the Irish pension landscape. Many employers are moving from a single employer trust pension plan to a Master Trust (a pension scheme with multiple unrelated employers) to comply with Institutions for Occupational Retirement Provision (IORP II) requirements.
What employers need to understand about Master Trusts
One element that may have been not full considered in the rush to move to a Master Trust is the group death in service benefit. Many employers decided to keep their death in service plan bundled with their move to Master Trust, however, employers may not be fully aware of the implications of this, such as:
Responsibility for paying benefits in the event of a claim – in many instances, the responsibility will fall to the trustees of the plan, but this may also be the employer under certain Master Trusts. It’s important that employers understand their duties under trust law and the potential risk that may arise in the event that the processes are incorrectly followed.
Making an election on how employees’ death benefits are paid – traditionally, employees would have completed an expression of wishes to assist trustees in the event of their death. However, in many Master Trusts, this is no longer possible.
Some Master Trusts only pay the benefits to the estate of the late employee – given the current delays associated with getting a grant of probate or letter of administration, this requirement can put a financial burden on the late employee’s family as often they need to enlist the help of a solicitor.
An employer may be tied to one insurer as a result of its Master Trust – as a result of this the employer cannot go to the market to review the rates being charged for the cover, which may result in the employer paying higher insurance premiums.
The rules around the treatment of a death depends on the Master Trust provisions. However, employers should seek independent advice as their Master Trust provider in almost all cases will be their brokers on their death in service benefits.
Death in service is a key, and emotive, benefit – particularly when claims arise. However, coupling it with a Master Trust could make an already difficult situation very complex. What’s more, employees should be aware of the risks associated with the structure they are operating.
Recommendations for employers
For employers, there are measures to put in place that help dealing with the complexities of the Death in Service benefit. With recommendations such as these, employers may be able to avoid paying overly expensive insurance premiums, for example:
Review the trust structure of your plan – ask your adviser if your death in service plan sits under a Master Trust or under its own death in service Trust
Request a copy of the trust deed and rules – so employers can review the wording, assess how benefits are paid in the event of a death and how death in service is treated under your Master Trust.
Consider moving your risk plan to its own standalone trust – this will provide you with maximum flexibility. If your death in service plan sits under your pension consider moving it to its own trust.
Assess the last time your risk plan had a market review for pricing – ask your adviser when the last full market review was carried out across all insurers in the market
For more information, visit our People Solutions (opens a new window) page or contact your local Lockton representative.
