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Relevant Life Policies
Presented by:
Mike Wilson
of
ContentBackground
Who Can Benefit
Tax Treatment
Cost Examples
Types of Policy
Procedures
FAQs
BackgroundEmployers can establish employer-financed retirement benefits schemes (EFRBS)
Relevant life polices are EFRBS
Most relevant policies are group life schemes
However plans can also be set up for individuals
Who Can Benefit?All Employees
Directors
Shareholding Directors
Not Sole Traders
Not Partners
Not LLP Members
Tax Treatment
Corporation tax relief on premiums
No NI liability for employer
No NI liability for employee
No Income Tax liability for employee
20% Tax Payer
20% Tax Payer
Premiums Paid Personally
Monthly premium
= £200
Pre-Tax Income needed at 20% tax plus 11% NIC
= £277.50
Employer NIC at 12.8%
= £32.00
Total cost to employer & employee
= £309.50
Less Corporation Tax at 21%
= £250.28
20% Tax Payer
Premiums Paid Personally
Monthly premium
= £200
Pre-Tax Income needed at 20% tax plus 11% NIC
= £277.50
Employer NIC at 12.8%
= £32.00
Total cost to employer & employee
= £309.50
Less Corporation Tax at 21%
= £250.28
Premiums Paid by Employer
Monthly premium
= £200
No Income Tax or Employee NIC payable
= £200
No Employer NIC payable
Less Corporation Tax at 21%
Total Cost to Employer
= £158
40% Tax Payer
40% Tax Payer
Premiums Paid Personally
Monthly premium
= £200
Pre-Tax Income needed at 40% tax plus 1% NIC
= 338.98
Employer NIC at 12.8%
= £43.49
Total cost to employer & employee
= £382.37
Less Corporation Tax at 21%
= £302.07
40% Tax Payer
Premiums Paid Personally
Monthly premium
= £200
Pre-Tax Income needed at 40% tax plus 1% NIC
= 338.98
Employer NIC at 12.8%
= £43.49
Total cost to employer & employee
= £382.37
Less Corporation Tax at 21%
= £302.07
Premiums Paid by Employer
Monthly premium
= £200
No Income Tax or Employee NIC payable
= £200
No Employer NIC payable
Less Corporation Tax at 21%
Total Cost to Employer
= £158
Types of PolicySingle life
Taken out by an employer
On the life of an employee
Ceasing before 75th birthday
Life cover – level or decreasing
Terminal illness benefit
Not critical illness cover
Limits on CoverUp to age 4020 X remuneration including benefits
40-5915 X remuneration including benefits
60+10 X remuneration including benefits
ProceduresEmployee completes life assurance application and nomination form
Employer completes Life of Another application
Employer completes trust deed
Employer plus a member of employee’s family appointed as trustees
Frequently Asked QuestionsWhat are the Inheritance Tax Implications?The policy is subject to a discretionary trust. Policy value is normally zero - so no periodic or exit charges.
What happens if the employee leaves?In most cases the policy is cancelled.
Life cover can still be funded by ex-employer – but not terminal illness benefit.
Employee can pay premiums personally.
What if beneficiaries are children?Trusts can continue for up to 125 years. In practice the trust assets would need to be managed to provide for the beneficiaries.
SummarySavings of up to 47%
All employees can benefit
Shareholding directors most likely
Premiums treated like pension contributions for tax purposes
Family protection policies
Mortgage protection policies
Questions?
Retirement Options
Presented by:
Mike Wilson
of
ContentBackground
Pension Benefits
Lifetime Annuities
Income Drawdown
The Third Way
Questions
Retirement is ChangingPeople are living longer – 30 years or more in retirement
Defined contributions pension funds are the norm
People are more active in retirement
Annuity rates are at an all time low
Legislation has changed to give more options
Defined ContributionsPersonal PensionsStakeholder PensionsSelf Invested Pensions (SIPP & SSAS)Executive PensionsFree Standing AVCsContracted Out Money PurchaseContracted In Money PurchaseS32 Buyout Bonds
Taking BenefitsFrom age 55
Normally 25% of fund available as tax-free cash (sometimes more)
Balance to be used to provide a taxable income
Currently benefits must be taken by age 75
Defined BenefitsProvide valuable guarantees up to retirementWill include dependant’s pensionWill include escalation of benefitsBUTNo flexibilityNo lump sum death benefitsConsider transferring to a defined contribution plan at retirement
Lifetime AnnuitiesSecure income for lifeSingle or joint lifeLevel or escalatingWith or without guaranteed payment periodWith or without value protectionEnhanced for ill health/lifestyleGuaranteed or investment linked
Lifetime AnnuitiesInflexible – choices made at outset
Single or Joint?
Escalating or level?
What if annuity rates rise?
What if I become eligible for an impaired life annuity (most will be)?
What happens to the fund on death?
Income DrawdownIncome flexibility – tax planningMaximum income approx 120% of available single life annuityFund available to family on deathSpouse can continue drawdownSpouse can buy an annuityFund can be taken as cash less 35% tax charge
Income DrawdownFund remains investedInvestment needs some equity contentFund growth may not support incomeNeeds reviewing regularly – feesNot suitable for small fundsNot suitable for cautious clientsNot suitable when no other income or assets
Temporary AnnuitiesOften called the Third Way
Terms from 3 years up to age 75
Guaranteed payments during the term
Income level selected at outset
Guaranteed maturity amount at the end
Lump sum and/or continuing income on death
Options at MaturityPurchase lifetime annuity
Purchase enhanced annuity
Purchase another temporary annuity
Transfer to Income Drawdown
Keeping All Options Open
SummaryPeople are living longer
Pensioners are more active
Annuity rates are low
Now more options than ever
Decisions are often irrevocable
Without professional advice only lifetime annuity is available
Questions?
