Life Assurance Pension
Mixing life assurance and pension considerations can be a dangerous compromise or a tax benefit.
Life assurance pension scheme can have beneficial tax implications, but it’s only best suited to high net worth individuals; and it can also mean that your level of cover is compromised by the tax benefit. It also means you need to think carefully about whether a change in your work circumstances will affect the pot of money you leave to your descendants.
You’re probably thinking that the idea of a life assurance pension is already sounding a bit complicated. To be brutally honest, using a pension vehicle for life assurance isn’t right for everybody- and here we will see why.
Effectively, a life assurance pension (or pension term assurance) pops a level-term life assurance policy into a pension fund. Because there are tax breaks for pension money (basic and higher level tax holidays depending on your earnings), the premiums you pay after tax relief will be lower than if you just got a normal policy.
However, there are a whole heap of problems with getting a life assurance pension. The Chancellor is pretty canny to this sort of thing, and that’s why there is a total cap on premiums being any more than 5% of your total annual allowance for personal pension premiums. Unless you earn an awful lot this can mean a conflict of interest between cover and tax efficiency.
Additionally, if you stopped working for any reason, the fund would cease (or at least remain static) and the element of the pension that contributed to the life assurance premium could be invalidated.
A life assurance pension is really only to be considered if you are a high net worth earner of secure means and inclined to place tax efficiency near the top of your financial wish-list.