The majority of employers, 78 per cent, are unaware that the death-in-service lump-sum can contribute to a pension lifetime allowance, according to Jelf Employee Benefits.

Furthermore, research by the company revealed that on learning that death-in-service benefits do count towards the LTA, just 45 per cent of employers will now review their schemes to avoid the issue.

Chancellor George Osborne announced a reduction of the LTA to £1m from April 2016 in his March 2015 Budget. Those who exceed this amount will be subject to significant tax penalties.

Jelf Employee Benefits warned that on the face of it this may appear to have nothing to do with benefits other than pensions, but this overlooks the reality that often benefits payable under a group death in service scheme can count towards the lifetime maximum.

Jelf Employee Benefits managing director of healthcare and group risk Iain Laws said the sole purpose of death in service benefits is to provide employees and their families with security should the worst happen.

“The on-going reductions in LTA mean it is essential that employers at least inform their employees of the rules and examine the suitability of the available plan designs to mitigate the application of LTA, and at best provide employees with access to guidance to help understand their individual situation,” he added.

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