Dave, from Mildenhall, asks: "I am a director of a manufacturing business employing 65 staff. Should we have a stakeholder pension scheme in place for all employees? We would like to reward longer-serving staff with life insurance that pays out cash to their families if they die. Is a pension scheme the best way to do this?"
Death in service benefits for a large number of employees is usually arranged as part of a pension scheme or as a
stand alone Group Life scheme, which also falls under the 'tax approved' rules that apply to pension schemes.
Such schemes offer some tax advantages for both the employer and the employee.
You should definitely offer a stakeholder pension scheme
to your staff anyway, so this may be the best way to provide life cover for your staff.
You do not need to pay any pension contributions into the scheme if you do not want to, but you could make contributions into the scheme just to cover the cost of life insurance benefits.
Your employees do not have to join the pension if they do not want to. Any premiums you do pay to provide pension benefits or life insurance are taxdeductible and can be offset against your company profits for income tax purposes.
Your premiums are also not treated as a 'benefit in kind' for employees, so they will not suffer a tax charge or national insurance on the premiums.
Any lump-sum death benefit from the life insurance is free of income tax and, if paid from a discretionary pension trust, this will not normally be liable for inheritance tax when paid to the children of the employee.
The lump-sum life insurance benefit can be no more than four times the member's salary. The earnings that scheme benefits are based on are usually the member's basic annual salary, but you may use other earnings if this is more appropriate (for example, to allow for other income such as bonuses or commission).
Providing life insurance either within a pension plan or as a stand alone scheme can be a very tax efficient way for you to reward loyal staff as part of their employee benefits package.
Contacting NickNick Plumb is an independent financial adviser. Send your questions to Nick at Bright Financial Planning, 58 Station Road, Sudbury, Suffolk, CO10 2SP, email them to
nickplumb@aol.com or telephone Nick on 01449 675674.
Nick's answers to reader questions in this column are provided only as a general guide and do not constitute personal financial advice. For any readers requiring specific advice on their own circumstances, Nick is happy to offer a complimentary initial meeting.
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