Pension Term Assurance and Tax Relief - Hot Topics Q&A

I am now confused, as my private pension assets are very small at around £80k and I understand that my 'NHS pot' is worth £230k, and I am only asking for a further £250k. This is £560k! What is the problem?

A. We certainly understand your confusion. Having seen which advisory company you are using, we understand that this is a blanket rule they have implemented to avoid any potential situation in the future where the applicant could exceed the Lifetime Allowance (and therefore incurring an additional tax charge).

However, we would take a different view. You correctly state that the total benefits you would have with the new life cover would be £560k. This is way below the £1.5 million limit at present, but of course these    benefits will grow, and you may invest more into pension planning.
  
Fortunately, The Lifetime Limits (LTA) will increase as well. Looking at the costs involved for buying such a plan compared to one without tax relief, you would be saving circa £20 per month. This would amount to £6000 over a 25 year term policy.

The way we would set this up is to use a life company who allow you to switch back to normal life cover without medical evidence if you are in danger of exceeding the limits. You would need to monitor this as the the tax charge would be at 55% on any excess over the LTA.