Life cover only benefits in occupational pension schemes.

The Pensions Regulator has now issued guidance on life cover only arrangements in light of Section 255 of the Pensions Act 2004 (the "Act") and schemes will need to consider any life cover only arrangements they have in the light of this guidance.

Section 255 requires occupational pension schemes to limit their activities to those related to the provision of retirement benefits and other ancillary benefits. The question had arisen about the extent to which life cover only benefits could be treated as ancillary to other benefits and accordingly whether they are benefits which an occupational pension scheme could provide.

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The Pensions Regulator has now issued guidance on life cover only arrangements in light of Section 255 of the Pensions Act 2004 (the "Act") and schemes will need to consider any life cover only arrangements they have in the light of this guidance.

Section 255 requires occupational pension schemes to limit their activities to those related to the provision of retirement benefits and other ancillary benefits. The question had arisen about the extent to which life cover only benefits could be treated as ancillary to other benefits and accordingly whether they are benefits which an occupational pension scheme could provide.

The problem does not arise in relation to schemes which only provide life cover as they are no longer treated as occupational pension schemes.

In relation to occupational pension schemes, the Pensions Regulator has confirmed that life cover only benefits can be provided to the following:

Employees who are in a "waiting period" before becoming eligible to join the pension scheme for retirement benefits

Employees who have declined membership or who have withdrawn from membership of the pension scheme

Existing members of a pension scheme which has been closed to new entrants or even to future accrual

Retired members who remain in service with their employer.

In the Regulator's view, if a scheme is closed to new entrants or to future accrual but still accepts new life cover only members, this could conflict with Section 255. In these circumstances, the Regulator has stated that the provision of life cover only benefits for new employees should be provided by way of a separate arrangement. Alternatively, if new employees are provided with pension benefits under another employer scheme and there is a "sufficient concrete and identifiable link through the employer between the provision of the lump sum death benefits under the one scheme, and the pension benefits under the other scheme" this may be sufficient to comply with section 255.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments. The original publication date for this article was 04/07/2006.

Mr Simon Pilcher

CMS Cameron McKenna LLP

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