Lockdown: fitter or fatter?
Covid-19 has driven many old certainties away, perhaps permanently. We’re waiting for the future to arrive. My guess is that, for every person using the extra time we’ve been given by lockdown to learn Mandarin or macramé or to climb Alpe d’Huez on an exercise bike, there are far more finding it hard to avoid spells of despondency and lassitude or to resist the lure of the fridge. Either way, an increased awareness of our mortality is surely influencing our behaviour.
At Employee Benefits Collective (EBC), our COGS Salary Plus benefits platform includes a link to Red Apple Law, which offers an inexpensive online will-making service, among other digital legal resources here:
Mel Marshall, a director at Red Apple, says she has seen an increase of over 20% in the number of people making wills since lockdown commenced.
Not unexpected really, although the size of the potential market may come as a surprise. Around 54% of adults in the UK haven’t made a will, according to research carried out in 2018 by Royal London. Dying intestate is a bad idea: you don’t decide who inherits, the law does. Dying without having registered a Death Benefits Nomination (DBN) form for your defined contribution (DC) pension is equally unwise — and we know from governance research that the percentage of people who haven’t completed these simple forms is far higher.
What we always call Death Benefit Nomination (DBN) forms are sometimes known as Expression of Wishes (EOW) forms or Nomination of Beneficiaries (NOB) forms.
The form you complete to nominate beneficiaries for your death-in-service life assurance at work is invariably called an EOW form. The form for your pension may be called that by pension providers too. This can lead to confusion. Often, employees who have completed a life cover EOW form are, understandably, under the misapprehension that it applies to their pension too.
As for NOB forms: you see the problem? Unless you want to trot out the full ‘nomination of beneficiaries’ phrase every time, you have to concentrate on your gaze level if you pronounce the letters as an acronym, or you have to say ‘en-oh-bee’ forms and create a conspicuous verbal diversion.
So: for the sake of clarity and to avoid the distraction of Carry On humour, DBN forms it is.
Form and substance
It’s quite strange, really. Completing and registering an EOW form for your death in service cover, which pays out a multiple of your income to your beneficiaries if the worst happens, is an automatic part of signing up for it when you start a job. Completing a DBN form, on the other hand, tends to be treated as an optional extra when you join a pension scheme. And yet our pension savings are likely to be the largest sum of money most of us amass during our lifetime.
Why do so few people complete such an important form? A small proportion of people know they should but never quite get round to it. Others, as noted above, think that their death-in-service EOW form applies to their pension too. Many, though, are simply unaware that DBN forms exist. They have never been clearly told about them.
A DBN form, I should add, isn’t legally binding in the same way that a will is. Its purpose is to tell pension trustees how you want your savings distributed. They are not obliged to adhere to your instructions. Non-adherence would be rare, however, and would need to be legally defensible. Failing to complete a DBN form — and to keep the form up to date — means that you are forcing third parties to make decisions on your behalf.
Blogs and articles by representatives of pension providers on the importance of completing DBN forms appear on LinkedIn every now and then, but the ones I’ve read stop short of propounding a solution to the low numbers. I suspect this is because it could be regarded as tactless or an admission of failure. Couldn’t providers do better? Yes, they could. So could advisers. But, as things stand, it is HR people who have by far the greatest influence.
As advisers, we at EBC urge attendees to complete DBN forms in all pension presentations and more general financial education sessions. Whenever possible we discuss them in 1:1s — and have on occasion agreed with HR to hand out forms, waited for people to complete them, then later passed them on to HR, who send them to the provider.
Modern workplace pension providers have been raising their game recently. Most policyholders no longer need to fill in a paper form and scan and email it (or even, depressingly, put it in an envelope and a letter box). Instead, they can register with providers and input their details into an electronic form on the website or via a downloaded app on their phone. A three-minute task. The problem of actually getting people to fill in the forms remains, however. Some providers have ways of raising awareness. Aegon, for instance, can initiate an instant email campaign by pressing a button. This is praiseworthy but won’t in itself be hugely successful. The cleverest stratagem I know of is used by Smart Pension. When employees register online, they are confronted by a pop-up box asking them to provide full personal details, which include a completed DBN form. It continues to pop up every time the employee logs on until he or she accedes. Bravo!
The fact remains that employers — that is, HR people — are best placed to address and solve this problem. It requires buy-in and a concerted effort on their part to be successful. Advisers and providers can assist, and the methodology will vary, but HR’s persistence is essential to success. Employees need to be reminded until they complete a form; and, equally importantly, they then need regular reminders to keep it up to date. Wise HR people will not want to be embroiled in legal wrangles about who should receive pension death benefits if an employee dies and there is no form or an out-of-date one. A quick Google search shows how messy this can get.
We at EBC have been working with one of our clients to great effect in recent months. The pension provider has been sending us a list of employees who have completed forms every month. We pass this information on to the employer. The employer sends a targeted mass email asking everyone who hasn’t yet completed a form to do so.
A few months ago, less than 5% of employees had nominated beneficiaries. Now, over 90% of nearly 1,000 employees have done so.
This is a simple message we deliver at all governance meetings: employers must get employees to complete a DBN form and remind them regularly to check that it continues to reflect their intentions.
Death comes to us all. Don’t make it harder on your loved ones than necessary. Make a will. Register a DBN form. And in case death is gradual, make a living will and register a lasting power of attorney too. Not a cheerful note to end on but a realistic one.
If you’re an employer and would like to know more about how EBC can help you to operate a pension scheme that delivers value for money, please get in touch.