Relevant Life Insurance is a type of life insurance policy tailored towards Directors of Limited Companies who wish to cover themselves or an employee. So, let’s have a look at how it works and the tax benefits that come with it.
Who is Relevant Life Insurance For?
Relevant Life Insurance is an insurance policy for Directors of Limited Companies who want to provide life insurance for an employee and don’t have enough employees to qualify for a group policy.
Relevant Life Insurance is a single-life policy; it covers one employee per policy. For example, you, as the Company Director, could choose to cover yourself through this insurance and pay for it through the company.
Just like with traditional life insurance policies, the price of premiums will depend on the level of cover and the age, health and lifestyle of the employee in question.
If the insured employee dies whilst employed by the company, a cash lump sum will be paid out. You are usually allowed to cover up to 30 times your annual renumeration, but it depends on your age and on your policy. Many policies will also pay-out if the insured person is diagnosed with a terminal illness with less than 12 months to live.
Relevant Life Insurance policies can be taken out by limited companies, charities and partnerships but sole traders are currently unable to access this type of policy.
Relevant Life Insurance vs Group Life Insurance
Relevant Life Insurance essentially acts as a death in service benefit for smaller businesses instead of taking out a group life scheme.
It’s best suited to companies which are too small to consider these group protection schemes or who only want to provide cover to one employee, such as to the Director. Group schemes often work out cheaper for larger groups so if your company is smaller, you may not qualify for this or it may work out too expensive.
Tax Efficiency: Corporation Tax, Income Tax and National Insurance
As Director of a Limited Company, you will not pay for a Relevant Life Insurance policy out of your own pocket. Instead, it is paid for by the company and so is classed as a tax-deductible business expense. Therefore, it is subtracted from company profits, in turn reducing your corporation tax liability.
Relevant Life Insurance is not classed as a P11D benefit in kind, meaning that Directors don’t have to pay extra income tax or make national insurance contributions on the value of the premiums. Premiums therefore qualify for income tax relief, national insurance relief and corporation tax relief. According to Legal and General, this means you could see your premiums reduced by up to 49% of a typical life insurance policy as a higher rate taxpayer, or up to 40% as a basic rate taxpayer.
No Impact to the Pensions Lifetime Limit
If you build up pension savings more than the lifetime allowance (currently set at £1,073,100*) you incur a tax charge.
Unlike with group schemes, Relevant Life Insurance does not fall under pensions legislation so it does not count towards the pension lifetime allowance. Therefore, this type of policy may be helpful for high earning directors or other employees who have reached, or are likely to reach, their lifetime allowance.
In contrast, lump sum payments under a group policy do contribute to the lifetime allowance and payments to the estate exceeding this limit would face tax charges of 55%.
Avoiding Inheritance Tax
If taking out a Relevant Life Insurance policy, you should establish a specialist trust to pay the benefit into.
This helps to avoid potential tax issues with the claim as the pay-out will not enter the company’s or the deceased’s estate, keeping it free from inheritance tax and avoiding probate delays.
*This figure is expected to be increased to £1.8m in the budget on March 15, 2023
If you have any questions regarding Relevant Life Insurance, or would like a quotation, please contact Red Star Wealth’s Managing Director Kristen Cunliffe via email kristen@redstarwealth.co.uk and she will be happy to help
by Red Star Wealth
As we are coming up to a new year, you might be thinking of making some changes to help improve your financial stability and happiness. Let’s have a look at some New Year’s Resolutions you can make to do so…
Prioritise my own Mental and Financial Wellbeing
Don’t stretch yourself too thin in order to please or impress other people. You are the main character in your own book of life!
Improve my Credit Score
A good credit score means you are more likely to be approved for loans and be offered lower interest rates on repayments. This resolution is particularly worth considering if you are thinking of getting something like a mortgage in the next few years. Some examples of steps you can take to improve your credit score are registering on the electoral roll and paying your credit card balance in full every month
Pay off More than the Minimum Payment each Month on my Credit Card
Even if you don’t pay the full balance, paying for than the minimum required payment is a good idea. This is because you reduce the amount of time you will be stuck making repayments and being charged interest. We talk more about credit cards on our sister company’s blog…
Increase my Pension Contributions
Pensions work on a system of compound interest so the earlier you start building your pension pot, the more it will be able to grow over time. If you are able to, increasing your pension contributions is definitely worth considering, especially if you are a woman… let’s close that gender pensions gap!
Build my Savings
Whether you’ve got something in mind you want to save up for or just want to create an emergency fund, savings are really important. LINK It sometimes seems impossible to save money because we think ‘too big’. For example, you might have a goal to save £1,000, but it seems unmanageable. However, when we break it down in terms of the amount we would need to save each week or month, it seems less daunting and more achievable. Maybe you could start by getting an un-openable tin money box, or enabling the round up transaction feature on your online banking if your bank offers this
Don’t open any New Credit Cards
Try not to increase your debt!
Tackle my Debt
Is 2023 the year of going debt free? One way of managing your debt is to pay off the ones with the highest interest rates first, in order to slow the rate of growth of the money you owe. It’s also worth checking out:
You are worthy and capable of achieving what you want in life. Keep working towards whatever that may be…
by Red Star Wealth
Scammers have various ways of getting you to depart with your pension, and once you make that transfer, your retirement money is gone. Scammers can be very hard to spot; they know exactly what they’re doing. Let’s explore how you can protect your pension and reduce your risk of falling victim to these scams…
Warning Signs
Cold calling- since January 2019, there has been a ban on cold calling about pensions. Unless you’ve asked a company to contact you about your pension, they are not allowed to. So, if someone tries to get into contact with you out of nowhere regarding your pension, steer clear!
Claiming to know ways of avoiding tax or saving on tax- yes, tax can be frustrating, but it is there for a reason. We are sorry to say that there’s no loopholes here!
Promising limited time offers or one-off investments- if it sounds too good to be true, it probably is
Offering a loan or cash back from your pension- don’t be tempted by the promise of cold hard cash. It’s false
Rushing you to make decisions- take a step back and question why you are being rushed. If they are legitimate, why would you need to make a decision so quickly about money you’ve been putting away for decades?
Getting you to download software or apps- scammers may do this to gain remote access to your devices in order to access things like your bank details
Free pension reviews- as one of the most popular pension scams, this sounds harmless but it won’t end up being just a review at all
Claiming to help you access your pension before age 55- you cannot do this without ending up with a very high tax bill from HMRC
Offering complicated investment schemes- a good rule to follow is that if you don’t understand it, don’t do it
Putting your money into a long-term investment- scammers may use this tactic as you wouldn’t necessarily notice for years that there is something not right
Suggesting you funnel all of your pension pot into a singular investment- the investments most scammers persuade you to buy into are incredibly high-risk, meaning you risk losing all of your retirement savings. Most regulated financial advisers will suggest diversifying your investments to reduce risk
Protecting your Pension
Many pension scammers have convincing websites and online presences to make them seem like they’re legitimate. This is why it’s so important to take extra precautions with your pension.
Check the FCA register to check if they’re legitimate
Check the FCA Warning List to see the risks associated with a potential investment
Talk to a regulated financial adviser before transferring your pension
Check it isn’t a clone firm. Some scammers pose as legitimate firms by using their name but different contact details. Make sure you use the contact details which are on the FCA website to ensure you don’t fall into this trap
If you think you’ve been scammed, contact your pension provider to see if they can stop the transfer if it hasn’t taken place yet
Your pension pot is made up of your hard-earned money, so why risk losing it all? Take these precautions and watch out for scammers! If you have been a victim of a pension scam, contact Action Fraud to report it.
Click here to learn more from our sister company about protecting yourself from financial scams.
by Red Star Wealth
With the Bank of England’s emergency bond buying support set to end today (Friday 14th October), we think it’s important to fill you in on what exactly has been going on.
The Mini Budget
Kwarteng’s mini-budget on 23rd September 2022 saw the Government announce enormous tax cuts with very little explanation as to how these would be funded. This has triggered strong waves of uncertainty which have in turn affected the UK’s financial situation.
It led to a steep drop in the value of the pound as well as rises in government borrowing costs.
Government Borrowing
One of the ways in which the Government generates enough money to fund its spending plans is by selling government bonds (also known as gilts) to investors. This acts as a form of debt which is paid back over time with the addition to interest.
They sell these bonds to investors such as large pension funds and big banks on international markets.
These investors have been demanding much higher interest rates to lend to the UK government because they have concerns over whether their tax cut plan will actually work.
What is the Link with Pension Funds?
Pension funds tend to invest in bonds as they are seen as a low-risk investment, giving a low but reliable return over a long period of time. They also buy a form of insurance to protect the value of these bonds.
As government borrowing costs increased, insurance providers began charging a higher rate of interest.
In order to afford these extra payments, many pension funds began selling their bonds, with further reduced their price and pushed up their interest.
This created a negative spiral, as the more bonds pension funds sold, the higher the cost of government borrowing became, meaning insurance payments rose, meaning even more bonds were sold, and so on, and so forth.
Bank of England Emergency Intervention
The Bank of England (BoE) decided to implement an emergency bond buying scheme as a temporary measure to stop the prices of government bonds falling any further and thus limit the need for pension funds to sell any more of them.
It did this by buying lots of government bonds. By buying these bonds, government borrowing costs should reduce, as it eliminates the need to pay those huge interest rates demanded by investors we mentioned earlier.
By buying these bonds, the BoE has helped stabilise their price, preventing further sales from pension schemes that could ultimately cause their collapse. They have essentially halted the market turmoil that was putting pressure on pension funds.
Despite announcing that they would buy up to £65bn bonds, with a daily purchase limit of £5bn a day, they have only bought around £5bn in total.
Only a Temporary Measure
The BoE’s intervention is a temporary measure aimed at maintaining financial stability. Their bond-buying scheme is due to end today, despite pension funds trying to get them to extend their intervention.
On Wednesday, when they announced that their emergency support would end on Friday as planned, the price of 20-year UK bonds hit new lows, with interest rates going up to levels not seen since 2002.
However, the idea behind the BoE stopping their intervention is that they expect demand to increase as pension funds rebalance their portfolios and stabilise. Think of the measure of them allowing pension funds some time to get back on their feet.
The BoE has not completely withdrawn support either. They have announced further measures to help pension fund sthat have been negatively affected by the recent market volatility. Under this measure, funds will be able to use a wider range of assets to access money to meet short-term financial needs. This should mean less pension funds having to turn to selling government bonds to raise cash, which is what was happening after Kwarteng’s mini-budget.
What a mess! If you’re still worried about what this means for you and your pension, reach out to a financial adviser for help.
by Red Star Wealth
Some of the figures from Now: Pensions’ Gender Pensions Gap Report 2022 show a shocking gender disparity in retirement incomes. There is currently a £136,800 gap between men and women’s pensions, giving a gender pension gap of an enormous 33.5%. This essentially means that women would have to work an extra 18 years in full-time employment to save the same pension level as a working man. Join us while we look through the reasons why this gap exists and how you can help build up your pension.
Childcare Responsibilities
Many women take career breaks for caring responsibilities, during which time they perform no paid work. Women also make up the biggest proportion of part time workers in the UK, partly because they take on more childcare responsibilities. The 2022 Gender Pensions Gap Report estimated that 42% of women in the UK have caring responsibilities, highlighting just how big an impact this can have on women’s working lives.
Given that raising children is unpaid work, women are often unable to make as high pension contributions. Career breaks also mean less opportunities for career progression through promotions, so women often miss out on pay rises as a result, so have lower incomes to make pension contributions from.
The Glass Ceiling
Amongst FTSE 100 companies, only 8% of CEOs are female, highlighting the lack of women in leadership roles.
Part of this is because there are still underlying notions of women being less capable then men. The Reykjavik Index for Leadership measures the extent to which societies view men and women as equal in terms of their suitability for leadership roles.
A score of 100 represents complete agreement that men and women are equally suited to leadership. The 2021/2022 index for the G20+ saw the UK with a score of 82. Whilst this is above the G20 average of 68, it still means that there is gender inequality. Why is it not 100? Why are women still not seen as equally capable of men?
Auto-Enrolment Pensions
Auto-enrolment was introduced in 2012, making employers legally obliged to offer workplace pensions for employers who meet the eligibility criteria. Part of this criteria is earning £10,000 or above from a single job role (not as a combined income from multiple jobs).
This is a great scheme… but only for those with traditional working patterns. If you are self-employed, take a career break or work multiple part time jobs, you may feel to meet the eligibility criteria. In fact, 23% of employed women fail to meet the criteria, as they are more likely to fall into all of these categories.
This means that many women aren’t automatically paying into a pension, and instead have to organise it themselves if they wish to join a pension scheme. And if they don’t, their pension pot simply won’t grow.
What could the Government do?
Reduce or remove the £10,000 auto-enrolment trigger so that more working women start automatically contributing to a pension fund
Make pension sharing more common in divorce
Make childcare more affordable so that more women are able to return to work after maternity leave
What can you do?
Try to pay in the maximum amount into your pension each month that you can reasonably afford. Just because the current auto-enrolment minimum is 5% from you and 3% from your employer, does not mean you can’t contribute more than this. If you get a pay rise or your expenditures go down, it’s always good to consider putting a bit more away for your retirement.
The earlier the better. The longer you make pension contributions for, the more you save. Pensions also work on a system of compound interest… the more you have, the faster it grows.
Auto-enrolment isn’t the only way to put money away for retirement. If you don’t fit the eligibility criteria it can be worth having a look into setting up a personal pension to see if it’s for you.
Try to keep up contributions even when you have a family, even if you are putting away less than before.
Keep an eye on your pensions pot. Check it like you would your bank balance to keep track of where you’re at so it’s easier to see if you need to start increasing contributions.
If you take a career break and stop making contributions, try to contribute a higher percentage of your income when you return to bridge the gap.
Try to share caring responsibilities more equally amongst you and your partner, so that you can both focus on paid work to the same extent.
