Assisting employees with their savings How to Help Employees Avoid the Lifetime Allowance

For the first time, HMRC has released details of the number of people exceeding the Lifetime Allowance, as well as the total amount of the tax collected as a result. The numbers revealed following a Freedom of Information request, are startling to say the least.

There has been a 2,000 per cent increase in the amount of tax collected from individuals breaching the Lifetime Allowance between the 2006/7 and 2016/17 tax years, from £5m to £110m.

The number of individuals affected has also ballooned from 210 in 2006/7 to 2410 in 2016/17.

With future increases to the Lifetime Allowance capped by the CPI rate, the number of people breaching the Lifetime Allowance is only likely to continue to grow rapidly.

No longer is the Lifetime Allowance a cap only affecting the wealthiest in society, more and more middle earners are being affected. Employees with reasonable amounts of retirement savings, especially where a lot of their saving is in Defined Benefit (DB) pension schemes, could easily find themselves approaching the limit, something that would have been unlikely before the steep drop in the Lifetime Allowance.

To complicate matters further, the Lifetime Allowance applies to all benefits accrued under Registered Occupational Pension Scheme rules. That is straight forward when you are only considering a person’s pension savings.

What a lot of people may not realise is that any Group Life Assurance benefits are written under a Registered Group Life Assurance scheme also fall under the Registered Pension Scheme rules.

As a result, it becomes a lot easier to reach and exceed the Lifetime Allowance when a person’s death-in-service lump sum is added to their pension savings. Suddenly people with no previous worries of breaching the allowance could find their next of kin facing significant tax liabilities should they die as a result of adding together their death-in-service benefit and their pension savings.

Thankfully there is an alternative option for Group Life Assurance benefits; an Excepted Group Life Assurance scheme.

These are not registered under the Occupational Pension Scheme rules, therefore any benefits are not assessed against the Lifetime Allowance.

Especially useful for organisations providing significant death benefits for senior employees, Excepted Group Life Assurance can be a sensible way to structure the benefits.

Existing Group Risk schemes can also be converted to Excepted status if required, subject to meeting the requirements for an Excepted Group Life Assurance scheme.

Bravo Benefits are able to work with you to ensure your benefits are structured in the most sensible way for the organisation and offer ongoing consultancy services to ensure your benefits continue to compete in the market and keep abreast of the latest technical and legal developments.

Feel free to get in touch for a no-obligation chat about your options.