Many UK workers have been placed on furlough or agreed to a temporary reduction in salary as a result of the Covid-19 outbreak.
And with that comes added financial worries about making sure the standard monthly outgoings will still be paid on time.
Temporary payment freezes and holidays are now in place for mortgages, credit cards, personal loans, store cards and catalogue debt with help for those with car finance expected to be announced early this week.
Banks have also stepped in with £500 zero-percent overdraft buffers and reduced interest charges in an effort to keep customers afloat during these financially challenging times.
Now more than ever, people will be scrutinizing their monthly outgoings and trying to find ways to save extra cash.
And one of the most obvious, may be the most damaging.
This means that by cancelling your deductions to get a bit more cash now, you don’t just give up on your boss’ contribution to your savings, you also might be giving up a huge payout for your family should the worst happen.
Former Pensions Minister Steve Webb said: “It is often not appreciated that as well as providing an income in retirement, membership of an occupational pension scheme can bring valuable death benefits.
“Although some help may be available for those who opt out, the most generous lump sum support for loved ones goes to those who are still actively contributing to their pension at time of death.”
And it’s not a risk that applies to just a few people – with 7.4million people having their pension and death in service benefits linked.
He added: “Before making a decision to opt out of any type of workplace pension it is important to find out what death benefits you would be giving up.”
Webb, who is now a partner at pension consultants LCP (Lane Clark & Peacock), said death benefits vary considerably according to the type of pension, but in some cases – particularly in the public sector – opting out of the pension scheme can leave a worker with a much smaller lump sum payout for their family if they were to die.
According to the latest Occupational Pension Schemes Survey, there are currently around 6.3 million public sector workers building up defined benefit (DB) pension rights, and the majority of these would see reduced death benefits if they were to opt out.
There are also 1.1 million private sector workers building up similar rights.
Here are the three main types of benefits on offer to different sorts of pension savers:
Salary-related defined benefit (DB) pensions, such as final salary schemes
The family of those who remain active members of a DB pension will receive a lump sum of three or four times annual salary in addition to ongoing survivor benefits if the member dies.
Defined contribution (DC) pensions
Many employees have been placed in this type of pension under automatic enrolment.
Generally, when a scheme member dies, their heirs may be entitled to the value of the accumulated fund. But the family of active members may be entitled to a lump sum death benefit which will often be a multiple of annual salary.
Group personal pensions and other DC workplace arrangements
In general, heirs may simply be entitled to the value of the pot whether or not the worker is actively contributing to the pension, but, in some cases, employers will have set up a separate death benefits scheme.
Webb said workers should check that this applies to them regardless of whether or not they are a member of the workplace personal pension scheme.
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