The abolition of the pensions lifetime allowance offers a benefit for employers providing group life cover, according to industry experts.
At the dispatch box this afternoon, chancellor Jeremy Hunt revealed the pensions lifetime allowance would be completely removed from April 2024 and the lifetime allowance charge will be removed from April of this year.
Steve Herbert, wellbeing and benefits director at Partners&, explained the changes should simplify some of the choices for employers who have previously had to implement sometimes complex and expensive higher-earner strategies where the previous tax-advantaged pension maximums were being exceeded.
“It also removes a niggling concern for employers around the pensions lifetime allowance being accidentally exceeded by the payment of a group life assurance claim,” he added.
Susan Bourke, head of risk and health at Broadstone, agreed – describing the removal of the lifetime allowance as “great news” for the protection industry which will eliminate many of the barriers to placing group life cover.
“The lifetime allowance has always been a frustrating complication for employers due to the HMRC registration process and the link to pensions legislation, which has never made very much sense to our industry,” she said.
“Its removal reduces many of the complications that employers have had to navigate and tough decisions they have had to make when placing cover for higher earners or for those that have historic defined benefit pensions.
“Balancing the added complexity of implementing excepted group life arrangements that come with their own taxation implications with the risk of a higher lump sum benefit on death through a registered scheme has always been a headache.”
She noted that it would be interesting to see if the government could go a step further and de-link registered group life from pensions altogether as the few connections that remained were the reporting of lump sum benefits over certain levels to HMRC for lifetime allowance reporting.
“The removal will also have a positive impact on the value and tax implications of group life flexible benefits, where members were unable to take advantage of salary sacrifice if their benefits were insured via an excepted scheme,” she continued.
“Consultancy and technical advice will now be needed for businesses who will clearly want to review their group life provision and examine their benefits.
“This will involve revisiting the eligibility criteria that they apply for cover to ensure it remains appropriate. Our clients have reacted quickly to the news, it’s going to be a very busy time.”