The Lifetime Allowance (LTA) was reduced in April 2016 from £1.25 million to £1 million. This change has led to our Pensions & Incentives Team regularly advising employers on Excepted Group Life Policies (EGLPs). Such policies are of interest to employers wanting to offer their employees lump sum death in service benefits, without triggering a punitive LTA tax charge.
Read on to find out more about these policies and how they may benefit your employees.
An EGLP is an insurance policy offering life cover for employees. A qualifying EGLP can provide for lump sum death benefits for employees that do not count towards the LTA and do not trigger a punitive tax charge – currently up to 55%.
It may also be possible for the employer to offset the premium for the policy against tax. Helpfully, EGLPs will not jeopardise those employees with LTA protection, such as fixed protection.
Under a life assurance policy that is not an EGLP, the benefit insured is counted towards the individual's LTA.
For example, an employee earning £100,000 who has four times salary cover for death in service will have an immediate reduction on death in their LTA of £400,000. This is before taking into account any other pensions savings. It therefore represents a significant disadvantage to the employee and so an EGLP may be preferable.
If you take out an EGLP with an insurance company, they will usually provide you with a standard trust deed and rules designed to hold the EGLP. It is important that you take legal advice on whether the trust deed and rules you have been provided with are appropriate for the EGLP and meets your company's individual requirements.
Our Pensions & Incentives Team can conduct a fixed fee review of the trust deed and rules and advise you on EGLPs.
For more information on the changes to the LTA and the new tapered Annual Allowance, please see our guide.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at August 2016. Specific advice should be sought for specific cases. For more information see our terms & conditions.