Opening the door to Lifetime Allowance & Relevant Life Opening - - PowerPoint PPT Presentation
Opening the door to Lifetime Allowance & Relevant Life Opening the door to Lifetime Allowance & Relevant Life What were going to cover today Understanding the lifetime allowance Lifetime allowance protections Is there a
By the end of this session you should…
upon death.
form of life cover for those clients with a lifetime allowance issue.
for your clients.
Fiona Hanrahan – Pension Development and Technical Manager
all years up to 2010 such that it increases steadily to £1.8 million in 2010;
years, with the first review in 2010. “...broadly equivalent to the maximum pension allowable under the current occupational pensions regime…”
Source: Budget 2004, Prudence for a purpose: A Britain of stability and strength, March 2004
“... so that everyone contributes their fair
share to reducing the deficit…”
£m
Source: Royal London & Budget 2015
0.5 1 1.5 2 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21
“... so that everyone contributes their fair share to reducing the deficit…”
Receipts 2013/14 2014/15 2015/16 2016/17 2017/18 £55m £82m £93m £144m £185m
Source: gov.uk official statistics
Individuals 2013/14 2014/15 2015/16 2016/17 2017/18 1,330 2,200 1,890 3,350 4,550
Designating funds for drawdown Entitlement to scheme pension Increase to scheme pension in payment Purchase of a lifetime annuity 5 x death/age 75 Relevant lump sums Relevant lump sum death benefits Transfer to QROPS Prescribed authorised member payments 13 Benefit Crystallisation Events (BCEs), most common are:
payment* + any lump sum
first benefit crystallisation event post A-Day at 25 x max GAD
crystallisation event post A-Day at 25 x current annual pension
value
* Schemes might have a different relevant valuation factor.
value
“... so that everyone contributes their fair
share to reducing the deficit…”
£m
Source: Royal London & Budget 2015
0.5 1 1.5 2 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21
Enhanced Primary IP 2014 FP 2014 IP 2016 FP 2016 FP 2012
Fixed Protection 2016
06/04/2016
Primary, Enhanced or Fixed 2012/2014
accrual above the ‘relevant percentage’
Individual Protection 2016 Individual Protection 2016
at 05/04/2016
maximum of £1.25m
Protection or IP 2014
FP2016 suitable where:
IP2016 suitable where:
Take all the excess as cash @ 55% LAC Take all the excess as income @ 25% LAC Don’t touch the excess yet – no immediate LAC Do nothing until LTA test forced
£50,000 (£400,000)
What are Jim’s options?
£1.5m £1.0731m
£426.9k
£234.795k
£804.825k £268.275k PCLS £192.105k £460.38k
Taxed as income Tax Free
£1.5m £1.0731m
£426.9k
£106.725k
£268.275k PCLS £804.825k £320.175k £1.125m
Taxed as income
£1.5m £1.0731m £426.9k £268.275k PCLS £804.825k
LTA test at next BCE or age 75 Any growth increases LTA charge
Taxed as income
No immediate LAC
£1.5m Tested at age 75 against full fund including any growth
BCE 7 Relevant lump sum death benefits BCE 5C Drawdown for a beneficiary BCE 5D Uncrystallised funds used to buy an annuity
to HMRC
BCE 7 55% on £426.9k BCE 5C 25% on £426.9k BCE 5D 25% on £426.9k
BCE 7 55% on £426.9k 55% on £400k BCE 5C 25% on £426.9k BCE 5D 25% on £426.9k
Gregor Sked – Protection Development and Technical Manager
Jim (47), Technical Director
James Managing Director Jane Sales & Marketing Director
H.M.S. JAMES’ ENGINEERING LTD.
Jack Finance Director Jim Technical Director
What about Jim’s family?
What death-in-service options are available for the business?
Home
Liabilities
Holidays
Children Hobbies
Second home Future proofing Lifestyle
Company pays No P11D charge Tax relief on premiums Tax-free benefits under trust Underwriting free cover Group rates Not available for smaller companies Not available on single life basis Can be inflexible Often no continuation option Comes under pension scheme rules LTA trap for high earners
Advantages Disadvantages
Relevant life plans can save your clients up to 49% on their life cover
exclusively rule)
having to wait for signatures from nominated trustees
same day
need to do anything different
nomination form to your client
*Assumes that corporation tax relief is 19% and has been granted under the ‘wholly and exclusively’
40% income tax and 2% NI. Employer assumed to be paying NI at 13.8%. Tax rate used 2020/21
Ordinary life plan Relevant life plan Premium £1,000 £1,000 Company gross cost Employee’s NI contribution (2%) £34
£690
£238
£1,962 £1,000 Company net cost Corporation tax relief (19%) £373 £190* Net cost £1,589 £810 Savings £779
High earning employees Smaller employers Members of group life schemes wanting to top up their benefits
0.6% of all UK businesses are ‘medium’ sized (50-259 employees) 4% of all UK businesses are ‘small’ sized (10-49 employees) 95% of all UK businesses are ‘micro’ sized (0-9 employees)
https://www.merchantsavvy.co.uk/uk-sme-data-stats-charts/ - Published February 2020
2018 protection sales by type:
Source – Swiss Re Health & Term Watch 2019
711,321 292,036 27,287 24,539 150,000 300,000 450,000 600,000 750,000 LTA DTA Rel Life FIB
2018 average new sum assured (£) by policy type (exc. CI)
*FIB figure represented as an annual income Source – Swiss Re Health & Term Watch 2019 17,068 149,394 172,262 178,572 452,510 150,000 300,000 450,000 600,000 Family Income Benefit* Level term Other term Decreasing term Relevant life
Regardless of your clients situation free cover will last for no longer than 90 days from receipt of application
Free Cover is available on our Personal Menu Plan, Business Menu Plan, Relevant Life Plan or Pegasus Whole of Life Plan
30 x remuneration to age 39 25 x remuneration 40-49 20 x remuneration 50-59 15 x remuneration 60+ Total remuneration could include dividends, benefits in kind and bonus.
basis
advice, access to specialist services or just someone to talk to.
temporary cover for a key member of staff.
providing help understanding Articles of Association and Partnership Agreements.
Helping Hand is a package of support services, provided by third parties that aren’t regulated by the Financial Conduct Authority. These services aren’t part of our terms and conditions, so can be amended
boost your business by providing content, such as sales and risk reports, to support client conversations and help overcome objections
your own branding
marketingstudio.royallondon.com
Do they have life cover for their dependant? If you have clients who are directors of their own business If so, are they paying for it out of post-tax income? Are they in a group life scheme? If so, do they have potential lifetime allowance problems
You should now…
protection is available and how the lifetime allowance works on death
efficient form of life cover for clients with a lifetime allowance issue
protection solution and feel more confident about bringing the solution into conversation
The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The firm is on the Financial Services Register, registration number 117672. It provides life assurance and pensions. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London EC3V 0RL. Royal London Marketing Limited is authorised and regulated by the Financial Conduct Authority and introduces Royal London’s customers to other insurance companies. The firm is on the Financial Services Register, registration. Registered in England and Wales number 4414137. Registered office: 55 Gracechurch Street, London EC3V 0RL. PR P8 WNAR 0004 May 2020
adviser.royallondon.com