Employers urged to review Death-In-Service schemes

Death-in-service schemes' benefits provided as part of a remuneration package may trigger adverse tax consequences following recent reductions in the Lifetime Allowance. Are your employees affected?

Many employers provide death-in-service schemes as part of their employees' remuneration package. Employers are urged to review these schemes to ensure they are tax efficient particularly given the recent reduction in the Lifetime Allowance.

The Lifetime Allowance

Members' benefits are tested against the Lifetime Allowance when certain events happen and a tax charge of 55% is potentially payable on lump sums if the allowance is exceeded.  The Lifetime Allowance has fallen to its lowest level to date (£1million for the tax year 2016/17) meaning more individuals are affected by the limit.

The issues

Benefits from death-in-service schemes which qualify as registered pension schemes will be tested against the Lifetime Allowance. This is potentially a particular issue for high earners whose death benefits are typically based on a multiple of salary and who may have built up substantial lifetime pension savings. If the total value of the death-in-service benefits and lifetime pension savings exceeds the Lifetime Allowance a tax charge of 55% could be payable on the lump sum in relation to the excess.

A further potential issue is that individuals who have enhanced protection or fixed protection may lose that protection by virtue of continued provision of a death benefit from a registered pension scheme.


Employers should review their death-in-service arrangements and ensure their employees, particularly high earners, understand the implications of membership of death-in-service schemes. It is possible for employers to set up excepted group life schemes which are not registered pension schemes and fall outside the Lifetime Allowance regime. However, there are conditions attaching to these policies which have to be complied with and so proper investigation is required before setting up such an arrangement. 

If you have any questions or would like more information, please contact Katie Kerr.

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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Katie Kerr

Senior Associate

I am a Senior Associate in DWF's Scottish pensions team and have extensive experience in advising on all aspects of pensions law.

Colin Greig


I have extensive experience of providing clear, practical advice to employers, trustees of pension arrangements, institutions and individuals on a wide range of pensions issues.

June Crombie

Partner - Head of Pensions (Scotland)

As Head of Pensions in the Scotland office, I bring over 26 years’ experience to my clients to help them to make better decisions and achieve their aims.


Tim Green

Partner - Head of Pensions

I am a Partner in the Pensions team with a broad advisory, transactional and dispute resolution practice.