Benjamin Franklin famously stated that that “Nothing is certain but death and taxes.” However, whilst few welcome lining HMRC’s coffers, it is the former phenomenon that people are most scared of.
Many just bury their heads in the sand. However, this ‘It won’t happen to me approach’ can cause serious delay and inconvenience when it comes to identifying who should receive the death benefits from company pension and life schemes.
By simply completing a nomination form (or ‘expression of wish’ form), employees can enable their intended beneficiaries to receive the money in only a few days.
The form filling only takes minutes, has no cost, and nominations can subsequently be changed simply by completing a fresh form.
But, if forms aren’t completed, it can take months, or even years, for the scheme trustees to identify the relevant individual or individuals and there is a risk these could differ from what the deceased had intended.
The scheme trustees ultimately decide who to pay the life or pension benefits to. But in the vast majority of cases they will choose those named on the nomination forms.
Nevertheless, we find that when there is no employer communication on the subject at all – other than when employees ask about it,- nomination form completion rates can be under 10%.
Employers should therefore demonstrate a duty of care by encouraging employees to complete these forms. Those that communicate this message effectively are also indulging in a degree of enlightened self-interest.
The death of an employee invariably proves a very difficult and sensitive time for any HR department, which may have to liaise with surviving partners or children and handle a lot of paperwork. So, the last thing it needs is the additional task of having to identify the intended beneficiaries.
Group life cover
When death claims occur, the process to track the appropriate beneficiaries from group life schemes when nomination forms have not been completed can be complex. Despite this complexity, rest assured that we offer invaluable expert support throughout the entire process.
We in fact currently have a case that is still ongoing after two months when a deceased individual hadn’t nominated anyone and had no obvious dependents.
Fortunately, some clients use us to provide employee welcome sessions, in which we can cover life and pensions nomination forms as well as many other employee benefits issues. And, following these, we find that 80% to 90% of employees end up completing the forms.
Unlike with pensions, when nomination forms tend to simply be included in employee welcome packs, Chase de Vere or the employer will send out life cover nomination forms on a stand-alone basis.
This means there is less chance of them being overlooked. And, if the employer wants us to, we can also chase up employees who haven’t completed forms.
Company pension schemes
Because employees can fail to read welcome packs thoroughly, pension scheme nomination forms often have lower take-up rates than their life scheme equivalents.
As well as creating a potential administrative minefield, this situation means that employers are failing to maximise the benefits of their significant pension scheme outlay.
Raising the nomination form issue can boost interest in pensions generally, making employees more aware of what they’re getting, and appreciating that they can pass on benefits tax-efficiently outside their estate.
A further potential advantage is that some pension providers use death benefit nomination data as one of the criteria via which they measure engagement. This means that if employers can increase nomination rates it might be possible to negotiate lower annual management charges or additional pension benefits.
Time for action
The best time to raise the issue of nomination forms, and explain how they can provide peace of mind, is when employees first join. Ideally, this should be done during one of our employee welcome sessions but, if not, at least via one of our welcome packs.
If you would like to find out more about how Chase de Vere can help with communicating the importance of completing nomination forms, then please don’t hesitate to contact us.
The Financial Conduct Authority do not regulate estate planning.
Content correct at the time of writing.