Relevant life policies can offer advisers an excellent path into the company protection arena. But how do they work? Jerry Bayman explains.
Much has been spoken about the impending effects of the Retail Distribution Review (RDR) on adviser remuneration. There is no doubt some advisers have concerns and are looking at ways to counter this.
Increasing activity in the protection market could prove the balancing factor to counter any reduction in cash flow, as protection does not come under the RDR rules and commission is still payable. The question is, how does an adviser turn investment and pension clients into protection clients?
Some clients may well be accumulating their wealth from running businesses, so one way might be to look at business protection, especially if an adviser has professional introducers. However, if this is an area where an IFA does not have a high degree of experience they may hesitate before diving in. So is there an easier way to broach this market?
The answer is relevant life policies (RLPs). These sit halfway between being personal and corporate business and can easily be embraced by advisers who may not have the confidence to jump straight into complex shareholder issues.
Technically speaking RLPs are stand-alone, single life, non-registered, death-in-service arrangements for employees. They came out of the 2006 pension simplification legislation as a replacement to the old ‘unapproved’ death-in-service arrangements, but with much better tax treatment.
Pretty well ignored
Initially, they were pretty well ignored by the main market as the legislation also produced the new ‘Pension Term Assurance’ which did much the same job only for a wider market. Unfortunately, when the treasury realised the size of the hole it was going to make in its tax take, this disappeared almost as soon as it was born.
Bright Grey was the first provider to offer RLPs in 2008. Since then a number of other providers have launched RLPs and it has become a main stream product.
The process is very simple.
The employer offers death-in-service benefits to the employee (which includes shareholding directors). The company effects a life policy on the employee under an employer trust. This is only available for employees – not equity partners or members of a limited liability partnership (LLP).