Case Study

Review of existing life cover

The client contacted us to discuss his pension options. When providing advice we always seek to obtain as much information as possible on a client’s circumstances and existing arrangements. As part of this ‘fact finding’ process it was discovered that the client had an existing life assurance policy for £1 million that was written under pension legislation and known as ‘Pension Term Assurance’.

The premiums qualified for tax relief in the same manner as a personal pension contribution so it was a tax efficient method of arranging life cover. However the £1 million sum assured would also be included in the client’s pension lifetime allowance, which is the limit on the amount of pension benefits that can be withdrawn from a pension without triggering a tax charge. The client had substantial funds under management in his pension and one of the main objectives was to review the options with a view to managing the lifetime allowance to avoid any future tax charges.

The client was the Managing Director of an IT recruitment business and therefore he was eligible for a Relevant Life Plan. This is an individual death in service plan available to employees including directors of Limited Companies and the sum assured does not count towards the lifetime pension allowance.

The recommended course of action was for the client to apply for a Relevant Life Plan for £1 million to replace the existing Pension Term Assurance policy. Any potential tax liability on death was immediately removed and premiums paid by the company will qualify as a business expense so will obtain corporation tax relief.