Pensions and Protection - Generic

Question 1

Benefits and drawbacks of death in service benefit

Answer 1

Benefits
- it is usually provided at no extra cost to the employee
- benefit is paid tax free
- three or four times salary can be paid out to deceased family
Drawbacks
- amount of cover is based on a multiple of salary which may or may not be enough to meet needs
- only a nomination of beneficiary can be made, not binding obligation although most trustees will pay to who has been nominated
- if relying on death in service and need life cover later, it could be difficult to obtain/expensive

Question 2

Explain how a salary sacrifice arrangement would operate in respect of pension contributions and the tax benefits this would provide

Answer 2

• agreement with employer/in writing
• employer reduces gross salary by agreed amount
• net pay unchanged
• no administration for Jim or Sandra
• treated as employer contributions/counts for annual allowance purposes
• reduces income tax
• reduced NI contributions as lower salary
• employer saves NI and may add this saving to the pension
• increased pension for IHT benefit

Question 3

Benefits and drawbacks of salary sacrifice arrangement

Answer 3

Benefits
- reduces NICs
- increases pension benefit without affecting net pay
- company may invest NIC saving into pension plan
- in line with objective of wanting to stay on track with -pension planning
Drawbacks
- salary level is reduced
- may affect any future borrowing
- maximum benefits on income protection may be reduced
- may reduce level of employee benefits

Question 4

Outline the key issues that should be considered when planning a strategy to meet any long term care costs

Answer 4

• their good health/longevity
• type of care required/at home/in a care home
• estimated costs
• inflation
• budget
• any state benefits
• their willingness to downsize
• they have significant assets so must self fund