Who is required to provide a workplace pension in the UK?
Question asked by Stephen Carter
I’ve newly set up my limited company. I’m now looking into Life Insurance for company directors to replicate what I used to have in my previous employed role.
I’ve come across Relevant Life Cover in my research. However, I’m not quite sure what the benefits of it are. Could you please explain?
Of course. There are many benefits to a Relevant Life Insurance policy. These mostly all centre on how tax-efficient the cover is. This allows for significant tax savings over a personal plan.
As you mentioned, company directors commonly use Relevant Life Insurance. It’s also available to contractors and other eligible workers.
When a limited company or other eligible entity, for example a charity, takes out Relevant Life Insurance for an employee, it is:
Furthermore, the policy is automatically set up in trust. This means the payout also bypasses your estate. There’s therefore no inheritance tax to pay.
One more benefit is that payouts are typically not included in pension lifetime allowance calculations. High earners with large pension pots therefore face less risk that their company Life Insurance will tip them over the edge of their pension lifetime allowance.
The above tax savings — laid out in the table — mean you can save almost 50% on Relevant Life Cover compared to a personal policy once the tax relief is taken into account.
|
Personal Life Cover
|
Relevant Life Cover
|
|
|---|---|---|
|
Cost to Individual
|
||
|
Monthly Premium
|
£100.00
|
£0.00
|
|
Employee NI Contribution
|
£3.45
|
£0.00
|
|
Income Tax
|
£68.97
|
£0.00
|
|
Cost to Business
|
||
|
Premium
|
£0.00
|
£100.00
|
|
Employer NI Contributions
|
£23.79
|
£0.00
|
|
Gross Cost
|
£196.21
|
£100.000
|
|
Corporation Tax
|
-£37.28
|
-£19.00
|
|
Total Cost
|
£158.93
|
£81.00
|
|
Total Savings
|
49.03% |
|
IMPORTANT NOTICE 🧐
As of the Spring Budget 2023, the UK chancellor announced the abolition of the pension lifetime allowance (LTA). This will take effect from 6 April 2023.
It’s important to note however, the Labour party have announced that if they were to be elected the allowance may be reintroduced in the future. If this occurs, we will update our records to reflect any changes. The information on this page is based on the LTA pre 6 April 2023.