It’s been 18 months since the first lockdown in March 2020 and although we’re returning to some kind of normality, Covid-19 will be a part of our lives for the long-term it would seem. It may have had very little impact in the running of your business or it may have caused enormous upheaval. Perhaps it forced you to take a look at how best to support your employees during such an uncertain time, or maybe you had great benefits in place that proved even more worthy than anticipated. One particular benefit that might have proved especially important is that of Group Life cover.
Group Life is a type of insurance that pays out a specified amount to the beneficiary or beneficiaries of an employee should they pass away while employed at the company. Sometimes called Death in Service benefit, it tends to be a multiplication of salary; usually two, three or four times. It sits outside of inheritance tax and usually provides a lump sum, that may be tax-free subject to certain criteria.
There are two main types of Group Life cover; registered and excepted. It’s important to understand the difference to make sure that your employees are getting the best out of the benefit.
Registered Group Life
Registered Group Life means that the scheme is registered with HMRC as an occupational pension scheme for tax purposes. Any pay out under this policy forms part of your lifetime allowance (LTA).
The LTA is the maximum amount of pension benefits you can build up without incurring additional tax charges. This currently stands at £1,073,100 and will stay at this level until April 2026. If a lump sum is paid out and the benefit goes over the LTA, anything above the threshold is taxed at 55%.
Excepted Group Life
Excepted Group Life policies are an alternative option to registered schemes. Their aim is to pay a tax-free lump sum upon the death of an employee in service but there are a few differences from a registered policy.
Excepted Group Life schemes don’t form part of your LTA but there are stricter criteria to ensure the policy is compliant. For instance, there must be one benefit level per scheme; i.e., all staff would be on a benefit that pays out two times their salary, as an example, rather than on varying levels. To have different levels of the benefit for different groups of employees you’ll need separate schemes. There may also be tax charges applicable to the Trust at certain milestones.
It’s essential to understand the nuances and differences of registered and excepted schemes to ensure that your employees are getting the right amount of cover. At Brunsdon Financial, not only are we able to set up new Group Life policies should your company need one, but we can also analyse your existing scheme, ensuring that you have the best policies in place for your team and that you’re compliant.