Impact on life assurance following further drop in lifetime allowance

Posted by John Hamilton on
Another reduction to the lifetime allowance (LTA) will take place next year from £1.5 million to £1.25 million.

The LTA applies to all savings made in a registered pension scheme including any life assurance benefits provided via such a scheme. Whilst payments over the LTA are not prohibited by legislation, they will be subject to a heavy tax charge.

Employers with staff whom may be affected by the new LTA, may wish to consider the impact of the reduction and how this might be mitigated. Equally, individuals who are affected should consider whether they wish to register and take advantage of the protections which are available. One option which employers with a large number of affected members might consider is moving the provision of life assurance from a registered pension scheme to a trust using an "excepted group life policy". Such a policy is not counted for LTA purposes, and provided it is a genuine business expense, all premiums paid in should continue to count for corporate tax relief.

In the majority of cases, the number of employers with staff earning enough to be affected by LTA will still be relatively small, as is the potential for such staff to die in service and trigger any life assurance becoming payable. Also, it may be that the LTA rises in future, particularly as many benefit limits continue to be based on the previous LTA, such as the limit for trivial commutation lump sums which remains at 1% of £1.8 million, at £18,000.

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John advises corporate and trustee clients on pensions law and is a director of Blake Morgan's Pension Trustees Limited, the firm’s independent trustee company.

John Hamilton
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Photograph of Adrian Lamb

Adrian has a wide range of pensions experience and expertise in of all aspects of pensions trusteeship, he is ideally placed to help rationalise employee benefits.

Adrian Lamb
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