Compare Life Insurance

The general field of occupational pensions is far broader subject, though the principles of life insurance apply there, too. There is, however, one class of people for whom no employer makes provision within an occupational scheme and who stand to get worse-than-average treatment from the State. These are the self-employed, who have been left out of the grand life insurance plans for every worker in Britain to have a second, earnings-related pension in addition to the established flat-rate State pension.

However, the self-employed and those in non-pensionable employment have been given the ability to provide for themselves through a special concession, and can make reasonable provision if they use the life insurance plans available. The main points can be found below:

• 1. Self-employed people (or those who are in employ­ment which is not pensionable) may devote 15% of their net relevant earnings (see below) or £3,000 a year, whichever is the lower, to contributions to a personal pension plan. Those born before 1916 are allowed higher limits so long as they are not entitled to a preserved pension from a previous job. The limits vary from 18% of relevant earnings (or £3,600 per annum if less) for a person born in 1914 or 1915 to 30% (or £6,000) for those born before 1908.
• 2. Contributions are eligible for tax relief not at the level of life insurance premiums but at full marginal tax rates (excluding investment income surcharge).
• 3. The funds in which contributions are invested are free from income tax and capital gains tax.
• 4. A pension may be drawn at retirement at any age between 60 and 75 (earlier if retirement is due to disability or illness or if early retirement is usual in a particular occupation).
• 5. The pension is taxable as earned income.
• 6. A substantial part of the pension may be taken as a tax-free lump sum.

A late amendment to the Finance Act 1978 has introduced a valuable benefit for holders of self-employed annuity policies. Up to now, except in connection with special schemes administered by trustees.

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