Pension Term Assurance
💎 What is Pension Term Assurance?
Despite what the name suggests, Pension Term Assurance (PTA) does not need to form part of a pension scheme.
Also known as a Section 785 policy, this type of cover is designed for individuals not covered by a company pension scheme, offering life assurance benefits similar to a traditional Level Term Assurance policy, but with the added advantage of tax relief, making it more cost-effective.
Who Can Use This?
There are two main types of Pension Term Assurance:
- Personal Pension Term Assurance:
- Suitable for self-employed individuals or employees without a company pension scheme.
- Premiums are paid personally, and the policyholder receives tax relief at their marginal rate of income tax.
- Executive Pension Term Assurance:
- Designed for company directors.
- Premiums are paid by the company, which can claim corporation tax relief at 12.5%.
What Is the Difference Between Personal & Executive?
| Type | Who Pays | Tax Relief |
|---|---|---|
| Personal Pension Term Assurance | Individual | At personal income tax rate |
| Executive Pension Term Assurance | Company | At corporation tax rate (12.5%) |
🙆🏻♂️ What Age Can It Go To?
Typically, Pension Term Assurance policies run up to age 65.
However, with the retirement age increasing to 68, it is also reasonable to extend cover to that age.
If you plan to retire earlier, say at 60, you can tailor the policy term accordingly.
Can It Be Converted or Indexed?
Yes. Pension Term Assurance can be:
- Indexed – to ensure your cover keeps pace with inflation.
- Converted – for example, if your cover runs to age 60, you could convert it to a personal policy after retirement for continued protection.
Conclusion
For sole traders, Pension Term Assurance is an effective way to reduce the cost of life assurance through tax relief.
For company directors, it makes financial sense to have the company fund the policy, gaining both protection and corporate tax advantages.
