UK Regulator Clears Up Rules on Lump Sum Death Benefits

October 12, 2006 ( - The UK's pension watchdog said that pension schemes that accept new participants for lump sum death benefits only when the scheme has already been closed to new members and future accruals have stopped may be in danger of breaching pension regulations.

However, according to guidance issued from the Pensions Regulator, if a pension scheme sponsor offers pension benefits to those employees under a separate scheme, it may accept the new member for death benefits only without being in violation of the UK’s Pensions Act.

Additionally, the regulator said schemes may offer lump sum benefits to employees who have been offered entry into a pension scheme and declined, and to employees who are in a waiting period, but will be eligible to enter the scheme afterwards. The waiting period could either be the initial probationary period for new hires, or the waiting period for eligibility as required by the scheme.

The guidance said pension scheme trustees should seek their own professional advice if scenarios for lump sum death benefits come up that are not covered by the guidance.

The new guidance is here .