Relevant Life Policies Presented by: Mike Wilson of
Content Background Who Can Benefit Tax Treatment Cost Examples Types of Policy Procedures FAQs
Background Employers can establish employer-financed retirement benefits schemes (EFRBS) Relevant life polices are EFRBS M...
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 l...
20% Tax Payer
20% Tax Payer Premiums Paid Personally Monthly premium = £200 Pre-Tax Income needed at 20% tax plus 11% NIC = £277.50 Empl...
20% Tax Payer Premiums Paid Personally Monthly premium = £200 Pre-Tax Income needed at 20% tax plus 11% NIC = £277.50 Empl...
40% Tax Payer
40% Tax Payer Premiums Paid Personally Monthly premium = £200 Pre-Tax Income needed at 40% tax plus 1% NIC = 338.98 Employ...
40% Tax Payer Premiums Paid Personally Monthly premium = £200 Pre-Tax Income needed at 40% tax plus 1% NIC = 338.98 Employ...
Types of Policy Single life Taken out by an employer On the life of an employee Ceasing before 75 th  birthday Life cover ...
Limits on Cover Up to age 40 20 X remuneration including benefits 40-59 15 X remuneration including benefits 60+ 10 X remu...
Procedures Employee completes life assurance application and nomination form Employer completes Life of Another applicatio...
Frequently Asked Questions What are the Inheritance Tax Implications? The policy is subject to a discretionary trust. Poli...
Summary Savings of up to 47% All employees can benefit Shareholding directors most likely Premiums treated like pension co...
Questions?
Retirement Options Presented by: Mike Wilson of
Content Background Pension Benefits Lifetime Annuities Income Drawdown The Third Way Questions
Retirement is Changing People are living longer – 30 years or more in retirement Defined contributions pension funds are t...
Defined Contributions Personal Pensions Stakeholder Pensions Self Invested Pensions (SIPP & SSAS) Executive Pensions Free ...
Taking Benefits From age 55 Normally 25% of fund available as tax-free cash (sometimes more) Balance to be used to provide...
Defined Benefits Provide valuable guarantees up to retirement Will include dependant’s pension Will include escalation of ...
Lifetime Annuities Secure income for life Single or joint life Level or escalating With or without guaranteed payment peri...
Lifetime Annuities Inflexible – choices made at outset Single or Joint? Escalating or level? What if annuity rates rise? W...
Income Drawdown Income flexibility – tax planning Maximum income approx 120% of available single life annuity Fund availab...
Income Drawdown Fund remains invested Investment needs some equity content Fund growth may not support income Needs review...
Temporary Annuities Often called the Third Way Terms from 3 years up to age 75 Guaranteed payments during the term Income ...
Options at Maturity Purchase lifetime annuity Purchase enhanced annuity Purchase another temporary annuity Transfer to Inc...
Summary People are living longer Pensioners are more active  Annuity rates are low Now more options than ever Decisions ar...
Questions?
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Relevant Life Policies

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Relevant Life Policies

  1. 1. Relevant Life Policies Presented by: Mike Wilson of
  2. 2. Content Background Who Can Benefit Tax Treatment Cost Examples Types of Policy Procedures FAQs
  3. 3. Background Employers 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
  4. 4. Who Can Benefit? All Employees Directors Shareholding Directors Not Sole Traders Not Partners Not LLP Members
  5. 5. Tax Treatment Corporation tax relief on premiums No NI liability for employer No NI liability for employee No Income Tax liability for employee
  6. 6. 20% Tax Payer
  7. 7. 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
  8. 8. 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
  9. 9. 40% Tax Payer
  10. 10. 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
  11. 11. 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
  12. 12. Types of Policy Single life Taken out by an employer On the life of an employee Ceasing before 75 th birthday Life cover – level or decreasing Terminal illness benefit Not critical illness cover
  13. 13. Limits on Cover Up to age 40 20 X remuneration including benefits 40-59 15 X remuneration including benefits 60+ 10 X remuneration including benefits
  14. 14. Procedures Employee 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
  15. 15. Frequently Asked Questions What 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.
  16. 16. Summary Savings 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
  17. 17. Questions?
  18. 18. Retirement Options Presented by: Mike Wilson of
  19. 19. Content Background Pension Benefits Lifetime Annuities Income Drawdown The Third Way Questions
  20. 20. Retirement is Changing People 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
  21. 21. Defined Contributions Personal Pensions Stakeholder Pensions Self Invested Pensions (SIPP & SSAS) Executive Pensions Free Standing AVCs Contracted Out Money Purchase Contracted In Money Purchase S32 Buyout Bonds
  22. 22. Taking Benefits From 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
  23. 23. Defined Benefits Provide valuable guarantees up to retirement Will include dependant’s pension Will include escalation of benefits BUT No flexibility No lump sum death benefits Consider transferring to a defined contribution plan at retirement
  24. 24. Lifetime Annuities Secure income for life Single or joint life Level or escalating With or without guaranteed payment period With or without value protection Enhanced for ill health/lifestyle Guaranteed or investment linked
  25. 25. Lifetime Annuities Inflexible – 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?
  26. 26. Income Drawdown Income flexibility – tax planning Maximum income approx 120% of available single life annuity Fund available to family on death Spouse can continue drawdown Spouse can buy an annuity Fund can be taken as cash less 35% tax charge
  27. 27. Income Drawdown Fund remains invested Investment needs some equity content Fund growth may not support income Needs reviewing regularly – fees Not suitable for small funds Not suitable for cautious clients Not suitable when no other income or assets
  28. 28. Temporary Annuities Often 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
  29. 29. Options at Maturity Purchase lifetime annuity Purchase enhanced annuity Purchase another temporary annuity Transfer to Income Drawdown Keeping All Options Open
  30. 30. Summary People 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
  31. 31. Questions?
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