Relevant life policies (RLPs) are quite a new concept offering, in essence, pension scheme tax reliefs to employees who want term life cover for as long as they are working. Though you could see them as exploiting a tax loophole, a more accurate description would be giving employees the same tax benefits on their life cover as large pension scheme members already enjoy.
This plan pays a lump sum on death in service or if diagnosed with a terminal illness. Under the relevant legislation (L&G has obtained a legal opinion on its core literature from leading barrister William Massey QC that the plan should meet its objectives and is compliant with legislation), RLPs must provide a death benefit only to employees and cannot last beyond age 74.
The plan must be taken out by an employer for employees only. That description includes company directors but not equity partners of a partnership or LLP (limited liability partnership), sole traders or any other person who is not an employee. The only benefits are life and terminal illness cover, so it is not possible to add critical illness cover for example. Maximum age at entry on this plan is 73.
Death in service benefits do not form part of an individual’s £1.5m (from 2012/13 or £1.8m until next April) lifetime allowance. The plan is designed to be written in a discretionary trust, using L&G’s Relevant Life Plan Trust, at outset, with the employee’s family and dependants as beneficiaries.
Maximum benefit is up to 25x remuneration at ages 17-29, falling to 10x remuneration at ages 60-73. Maximum sum insured is £10m, with detailed financial information required for sums insured of £2.5m and above. The minimum term is one year and the maximum term is 40 years, but the plan must end by age 75. Premiums are payable monthly or annually and are guaranteed throughout.
Accidental death cover up to £300,000 is included for up to 90 days from receipt of application form and lasts until the plan goes on risk. Lives insured below age 45 can increase benefits with no further underwriting on promotion at work and in other specified situations. Benefits can be linked to inflation, as measured by the RPI (Retail Prices Index).
A continuation option is included but this must be exercised within 30 days of leaving. The new employer can then take over the RLP or the customer can have a new L&G term assurance policy, subject to a declaration of good health.
What They Say
Head of product development, Alison Manning, said: “The launch of Relevant Life Plan compliments our existing business protection proposition and group life offering. In the current economic climate this is a tax efficient benefit that employers of small businesses can provide for their employees, providing them with peace of mind should the worst happen.”
What We Say
"RLPs started to emerge a couple of years ago, but progress has been slow, partly because the industry still remembers what happened when PTA [pensions term assurance] became first available, then popular then outlawed by the Government a few years ago [with the industry being blamed].
"Will RLPs go the same way? Probably, but while they are available it is hard to see why an employee would choose conventional term over an RLP. However, RLPs are more complex, have to be set up by the employer and can only provide death in service benefits – although that definition includes terminal illness benefit too."