Tony, 46, works for a large company. He is married and has two young children, has diabetes, is a smoker and has a mortgage of £149,000. His employer has an employee benefits package including a contributary group pension scheme, two times basic salary life insurance, private medical insurance and an Income Protection plan (company sick pay scheme). The benefit scheme allows the staff to choose which benefits they want to suit their own circumstances.
Tony has asked for advice as to which benefits would suit his circumstances and if they would provide sufficient protection for his family? LR Financial Services looked at the details of each benefit and explained to Steve the following:
- To join the group pension scheme, he would have to contribute 5% of his gross salary, but if he did so then his employer would contribute 5% as well. The advice was to join the scheme as it is one of the most tax efficient way to save for his retirement.
- We went through his life assurance needs (please see the life insurance case study for details). The advice was to add the life assurance benefit, as this is not classed as a benefit in kind with no additional income tax liability, but to add an additional policy to fully protect the family and include a critical illness benefit
- The sick pay scheme would provide his full salary for 3 months, 3 months halve pay less statutory sick pay and thereafter, statutory sick pay. The advice was to take out a stepped policy with 2 deferred periods, the first of 3 months, which would provide a benefit of halve the maximum benefit allowed and the second deferred period of 6 months, to provide the other halve of the maximum benefit available. This would then ensure that Tony would have sufficient income to continue supporting his family in the event of a long-term illness.
- Finally, the Private Medical Insurance would provide protection for himself and if he wanted to add his family to the policy, this would incur an additional premium. It would also be classed as a benefit in kind and would mean that his personal allowance would be reduced and he would therefore pay more income tax.