Under the new system, in case of death before the retirement date, it is no longer possible to release the accumulated pension pot to the surviving dependants to optimise surviving dependants’ pensions. These type of set-ups are currently still part and parcel among pension insurers and PPIs.
By: Berry van Sonsbeek, Product Market Manager Zwitserleven
Why does a paid-up variant add value for participants?
At its core, there are two main reasons:
- 1. The released pension pot can be used to improve the surviving dependants’ pension upon the participant's death. Of course, to what extent does depend on how much is in the pot. It generally has a minor effect for young participants. For slightly older participants, the amounts can be substantial and thus do add value;
- 2. Participants view their pension pot as 'their own' money. Especially if they also top up the pot with their own voluntary deposits to optimise their pension. In daily practice, we already see a clear need among PPIs and pension insurers to ‘protect’ this ‘own’ money by way of the paid-up variant in case of death.
Yet the disappearance of a paid-up variant may also have value for participants. The fact that the administrator (pension fund, insurer, PPI, etc.) benefits in the event of death - the personal pension pot does then not have to be paid out - usually translates into a bonus contribution added annually to the personal pension pot (in the case of insurers and PPIs), or an addition to, for example, solidarity reserves (in the case of pension funds). With on balance a small benefit (a few percent) of a higher pension at the retirement date.
However, if matters are nonetheless going to be regulated in a sweeping bill, I would urge MPs to take another critical look at this. The arguments described in the minister's letter for not allowing the paid-up variant are, from my viewpoint, pretty thin!
In her letter, she mainly refers to the situation after leaving employment involving the possibility of a voluntary continuation of the coverage of the surviving dependants' pension. In doing so, she does a disservice to the discussion on the motion.
Incidentally, I do share the view that with the disappearance of the paid-up variant, implementation will be somewhat simplified. But does this also do justice to participants' desire for choice? I furthermore worry that this will make participants less likely to save up extra in their own pension scheme. After all, in case of death before the retirement date, they will have lost that deposited money in any case.
On balance, I do very much believe the paid-up variant adds more value for the participant.
This article is published on 25 July 2023