A leading adviser is warning employers to review the impact on death in service staff benefits following pension protection changes.

Aon Employee Benefits says that, until recently, concerns around lifetime allowance (LTA) and pension protection schemes were primarily for very high earners who took out excepted group life policies where tax-free benefits offered as part of the scheme did not count towards their LTA. But following the myriad of pension protection changes including reductions to both the LTA and the Annual Allowance, the growth in DC pension pots and the higher level of lump sum assurance cover now on offer, the impact on death in service benefits is likely to affect more employees.

According to Richard Strachan, Scottish Regional Director at Aon Employee Benefits, failure to address the implications could result in several issues: “Employees and new hires with Pension Protection may lose their protected status, high earners and their nominated beneficiaries may have some or all of their lump sum life assurance benefit pay out taxed at a rate of 55 per cent and schemes may be incorrectly documented with insurers, leading to delays in claim pay-outs or even uninsured liabilities,” he says.

In Aon’s recent survey of 1,162 companies across the UK, less than a quarter of respondents have made an active assessment of the implications of the latest legislation, with inaction being especially high among smaller (sub-100) employers.

Among larger employers – which in Scotland applies to those operating within the Financial Services and Oil & Gas sectors – under half have taken steps to address the issues, with 46 per cent using Excepted Life Assurance Policies as part of their benefits strategy, although there were considerable differences in how this approach was executed.

“There has been no shortage of pension regulations for employers to adapt to in recent years and it’s understandable if life assurance issues have yet to reach the top of the agenda,” Strachan continues, “but given the implications of inaction, this is an issue which applies to many more employers and one that cannot continue to be buried by the seemingly dominant pension agenda”.