Setting Up and Managing a Group Life Scheme for Employers

A group life scheme — colloquially known as a death-in-service scheme — is the most widely offered employer benefit in the UK. It provides a tax-free lump sum to an employee's dependants if the employee dies while in service, regardless of the cause of death.

For employers, it is a relatively low-cost, high-value benefit that forms part of a competitive total reward package. For employees, it provides meaningful financial protection for their families without requiring them to arrange or pay for individual life assurance.

This guide explains how group life schemes work, the critical choice between registered and excepted structures, the underwriting mechanics, trustee obligations, and the administration responsibilities that fall to the employer.

How a Group Life Scheme Works

A group life scheme is a master policy held by the employer (the policyholder), covering all qualifying employees under a single arrangement. Key characteristics:

The employer is the policyholder: The employer contracts with the insurer, pays the premiums, and is responsible for the administration.

The employees are the lives assured: Each qualifying employee is insured under the scheme, typically for a multiple of their annual salary (commonly two to four times salary).

The trust holds the benefit: The scheme is established under a group life trust. The trust is the legal owner of the policy. On a valid claim, the insurer pays the trust, and the trustees distribute the funds to the beneficiaries.

The employees nominate beneficiaries: Each employee completes a nomination (expression of wishes) form specifying who they wish to receive the payment. The trustees take this into account but exercise discretion.

Premiums are employer-paid: The employer pays all premiums, which are a deductible business expense. The employee pays nothing and receives no benefit-in-kind tax charge.

Registered vs Excepted Group Life Schemes

The most important structural decision when setting up a group life scheme is whether to use a registered or excepted basis. This choice has significant implications for high-earning employees.

Registered Group Life Schemes

A registered scheme is registered with HMRC as a registered pension scheme under the Finance Act 2004. A lump sum death benefit under a registered scheme is tested for HMRC purposes against the employee's lump sum and death benefit allowance (LSDBA), which replaced the former pension lifetime allowance (LTA).

The LTA charge was removed from 6 April 2023, and the LTA was abolished entirely from 6 April 2024, with the LSDBA (£1,073,100) introduced in its place. However, the transition is not clean: the registered pension scheme rules still govern the tax treatment of death benefits under registered schemes, and the abolition of the LTA does not entirely remove the framework. A lump sum death benefit paid in excess of the available LSDBA is taxed at the recipient's marginal rate of income tax. The death benefit from a registered group life scheme is also subject to various pension scheme rules, including the requirement that the scheme is "genuinely" providing death benefits rather than structured to avoid tax.

For most employees, a registered scheme is entirely appropriate: the death benefit is tax-free to the beneficiaries (paid from a pension scheme trust), the premiums are employer-deductible, and there are no income tax or NI complications.

Excepted Group Life Schemes

An excepted group life scheme is specifically NOT a registered pension scheme. It is structured under ICTA 1988 (as amended) and provides death benefits outside the pension scheme framework.

The key advantage is that the excepted scheme's death benefit does NOT interact with the pension lifetime allowance framework at all. For employees who have accumulated substantial pension funds and may be close to or over historical LTA limits, an excepted scheme ensures their group life benefit does not create a tax charge.

Excepted schemes are increasingly used as the default structure by employers with highly paid senior employees — particularly those who have maximised their pension savings.

Points of difference:

	Registered Scheme	Excepted Scheme
HMRC registration	Yes	No
LSDBA interaction	Yes (lump sum death benefit tested against the allowance)	No
Premium deductibility	Yes	Yes
Tax-free to beneficiaries	Yes (paid via pension trust)	Yes (paid via separate trust)
Suitable for high earners	Potentially not	Yes
Scheme management	Pension scheme rules	Separate trust framework

Many employers run both a registered scheme (for the general employee population) and an excepted scheme (for senior executives whose pension position warrants it).

Free Cover Limits

One of the most valued features of group life schemes is the free cover limit (FCL). Below the FCL, employees are automatically covered without providing any evidence of health. There is no individual medical underwriting, no questionnaire, no blood tests.

This is a significant practical advantage over individual life assurance, where every applicant must disclose their medical history and may face premium loadings or exclusions for pre-existing conditions.

The FCL is set by the insurer and is typically expressed as a sum assured (e.g., £500,000 or £1 million) or as a salary multiple (e.g., four times salary up to a maximum of £1 million). The FCL increases as the scheme grows because the insurer has greater statistical certainty about the risk profile of a larger group.

For new joiners to the scheme: automatically covered up to the FCL from their start date (subject to actively at work conditions — see below).

For existing employees whose cover exceeds the FCL: the insurer requires individual evidence of health (a medical questionnaire and possibly a GP report or medical examination) before the excess is covered.

For employees who join late (after the scheme's first year) or who have recently had significant health events: the insurer may apply individual terms even below the FCL.

Actively at Work condition: Many group life schemes include a condition requiring the employee to be actively at work on the date their cover commences. An employee who is on sick leave when the scheme starts, or who joins during a sick leave period, may not be covered until they return to work. Employers should communicate this to HR to avoid gaps.

The Nomination and Trust Process

Nominations

Each employee should complete an expression of wishes form specifying their preferred beneficiaries. Typical choices: spouse, civil partner, children, or other dependants.

The nomination is not legally binding — it is guidance to the trustees. The trustees are not obliged to follow the nomination, but in practice they will do so in the vast majority of cases unless there is a compelling reason not to (for example, a recently divorced spouse who has remarried, or an estranged family member).

Nominations must be kept current: An employee who married ten years ago may have nominated their spouse then — but if they have since divorced and remarried, the nomination may point to the wrong person. Employees should be encouraged to review their nomination annually or after any significant life event.

Employees without a nomination: If an employee dies with no valid nomination, the trustees must exercise their discretion without guidance. They will typically investigate the employee's family circumstances and distribute to the surviving spouse and children. This process takes longer and may be distressing for the family.

Trust Management

The group life trust is a separate legal entity from the employer. The trustees (typically the employer's nominated directors or HR representatives, plus an independent professional trustee for larger schemes) hold the trust assets on behalf of the beneficiaries.

Trustee duties include:

• Maintaining scheme records (employee data, nominations, scheme documents)
• Processing claims promptly and distributing in accordance with nominations and discretion
• Keeping trust documentation current (review the trust deed when legislation changes)
• Acting in the best interests of the beneficiaries
• Ensuring AML/KYC (anti-money laundering and know-your-customer) compliance when distributing trust funds to beneficiaries

For small schemes (fewer than fifty employees), the employer's directors typically serve as trustees without significant ongoing burden. For larger schemes, an independent professional trustee — typically a specialist corporate trustee company — is advisable to ensure governance standards are maintained.

Employer Administration Obligations

Setting up a group life scheme creates ongoing administration obligations for the employer:

Annual renewal: The scheme renews annually. The employer must provide updated data (employee names, dates of birth, job titles, salaries, scheme membership dates) to the insurer.

Reporting joiners and leavers: Mid-year additions and removals must be notified to the insurer. Late notification can result in coverage gaps.

Premium payment: Premiums are typically paid monthly or annually. Late payment can create coverage risks.

Communication to employees: Employees should receive a member booklet or similar communication explaining the benefit, how to nominate, and how to make a claim. Clear communication drives engagement and ensures nominations are completed.

Interface with auto-enrolment: Workplace pension auto-enrolment and group life schemes are separate arrangements. However, they are often confused in employee communications. Be clear that the pension auto-enrolment does not provide life cover — that comes from the separate group life scheme.

Claims: When an employee dies, HR must notify the insurer promptly, provide the death certificate, and guide the family through the claim process. The family should not be left to navigate the insurer alone — this is a moment where the employer can provide genuine support.

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Group life schemes involve insurance, trust law, and tax considerations. The registered vs excepted choice should be made in conjunction with a qualified financial adviser and pension specialist. The information in this guide reflects the general position as at 2026 — legislation, HMRC practice, and insurer terms can change. Employers should review their group life scheme annually and take professional advice when making changes.

How Global Investments can help

Global Investments works with employers of all sizes to design, establish, and manage group life schemes — including the registered vs excepted analysis, trust establishment, free cover limit negotiation, and annual renewal administration. For international businesses operating across multiple jurisdictions, we can coordinate cross-border group schemes and ensure multinational employees are properly covered regardless of where they are based. Contact us to discuss your group life requirements.