Pension Term Cover - an alternative opportunity

What would an individual think of the ability to get this family protection for potentially 40% cheaper than a standard term policy or even better still, get an even higher amount of protection for the price that they had budgeted for? Well this is one strong reason why Personal Pension Term Assurance can make a huge difference to protecting the future of your client’s family. 

Who may be eligible?

Personal Pension Term Assurance can be taken out by clients who are self-employed or in a non-pensionable employment. For example, the following types of employees may be eligible for this type of cover; self-employed professionals (such as accountants, solicitors, dentists and doctors), self- employed individuals engaged in a trade (not through a company), farmers and employees in non-pensionable employment including self-employed contractors. 

Why it makes sense?

There are a number of reasons why a client would look at taking out this type of plan. One key reason is the ability to benefit from up to 40% tax relief on the premiums paid with income tax relief at your client’s marginal rate up to an earnings cap of €115,000. Price is an important factor of any financial plan and Personal Pension Term Assurance premiums are deductible against relevant earnings in the same manner that tax relief applies to Personal Pensions.

One area that’s worth keeping in mind is where your client has had a medical loading applied. Pension Term Assurance can give them the peace of mind that comes with allowing them to get their required level of cover for the same net cost as a non-loaded Term Assurance plan. 

Future proof your pension

Clients at the beginning of their career and in particular when they are starting a family will be concerned about what retirement will look like from a financial point of view. By taking out a Personal Pension Term Assurance case until their Normal Retirement Age, they will mean that in the event of death, the pension that the client would have gone on to accrue in their future years of working is paid out to the family. On death the proceeds are paid out gross to your client’s estate. Normal rules for Capital Acquisitions Tax apply and the beneficiaries may be liable to inheritance tax depending on the size of the fund and their relationship to the deceased.

To illustrate an example of this, a male aged 45 on a salary of €70,000 who wishes to retire at age 66 on a combined income of €20,000 (inclusive of the state pension) would need to achieve a pension pot of €437,000 based on current annuity rates. The monthly pension premium to achieve this pension pot would be €994 per month (€596.40 Net). If the client took out pension term protection with life cover of €437,000, this will cost the client a net amount of €40.55 after tax relief (policy premium of €67.59). The potential here to take a portion of the client’s net income to insure this gap in event of death may prove very beneficial at a later stage. 

Dual income earners

A client who may have more than one source of earnings may be able to contribute to a personal pension if at least one of the sources is relevant earnings provided the aggregated earnings from employment & self-employed income are within €115,000. An example may be an individual who is employed in the civil service in pensionable employment but has a separate farming income (which is relevant earnings) which could be pensioned separately with a personal pension (and therefore allow Personal Pension Term Assurance). Also, a spouse/civil partner with their own relevant earnings is eligible to take out Personal Pension Term Assurance in respect of this income, even if their spouse is in pensionable employment and they are assessed to income tax under joint assessment. 

Flexibility

The average person will work a number of jobs throughout their career. A common misconception is that cover with Pension Term Assurance must cease if an individual changes jobs or career. By exercising the Protection Continuation Option on their policy, this does not have to be the case. Where an individual becomes ineligible to claim tax relief on their Personal Pension Term Assurance policy, they can continue their protection with a new policy, without further medical evidence. It’s worth nothing that this new policy might not be an approved Pension Term Assurance policy, but they still will be able to keep protection in place for their family.

This for example can lead to a young self-employed plumber availing of a higher level of cover in his earlier years of trading at the same net cost to him/her. This allows them to protect their family in the event of death due to the lack of cover or pension accrued in their earlier years. Should the business grow and lead to them going to Ltd Company in the future, they can then continue this cover on in their own personal name. It will however have allowed your client to benefit from getting Life Cover at a younger age leading to reduced premium.

The Revenue Online System now has the added benefit of being able to apply tax relief automatically on these premiums. This coupled with the benefit of tax relief and the current offers available from Zurich makes the “Personal Pension Term Assurance Conversation” worth having in what is a very strange year where both health and job uncertainty are to the forefront.

For more information please contact your Zurich Service Team or your Broker Consultant.

The information contained herein is based on Zurich Life’s understanding of current Revenue practice as at October 2020 and may change in the future.