relevant life policies

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?