Hot topics - what issues are your clients facing today?

Fiona Hanrahan: Hi everyone, and welcome to the latest webinar from Royal London. Today's is a joint pensions and protection one, and we're going to cover off the hottest topics. I'm Fiona Hanrahan and I'll be covering the pension side. And Gregor Sked, the protection side. We are both Senior Technical Managers at Royal London. And in this session, by hot topics, we mean a combination of things you're asking us about as well as what's coming in the near future.

On the pension side, I'm going to talk about pensions and inheritance tax, as well as how the freezing of the tax bans until 2031 will mean more people will be paying higher rates of tax and potentially getting caught in tax traps. I'll talk about how a pension contribution can help and focus on the child benefit tax charge.

On the protection side, Gregor will talk about the protection solutions you might want to consider if your clients are facing a larger tax bill due to inheritance tax, applying to their pensions from April 27. He'll explain the role of Rysaffe planning when dealing with pure protection policies and discretionary trusts, and he'll talk about the FCA findings from the recent pure protection market study.

If you're listening live, you'll be able to ask us a question during the session, and we'll get back to you as soon as we can. After the session, you'll be directed to a short quiz, and after answering the questions, you can download your CPD certificate. If you're listening to a recording, you'll see the quiz on the same page you access the recording. Please get in contact with your usual Royal London contact after the session if you have any questions. So, let's get on with the webinar then.

As you would expect, we have some learning objectives. Describe how the freezing of tax bans will mean more people will be paying higher rates of income tax and how paying a pension contribution can help. Explain where inheritance tax might be due on a pension from April 27 and how you can reduce your estate using your pension.

Explain the role of Rysaffe planning when dealing with pure protection policies and discretionary trusts. And finally have a better understanding of the FCAs findings from the recent pure protection market study.

So, freezing of the tax bans until 2031. In the 2025 budget, it was announced that the personal allowance of £12,570 and the basic rate limit of £37,700 will remain frozen until the 5th of April 2031.

Now the personal allowance applies to the whole of the UK, but Scotland can and could vary their income tax rates and limits above that, the National Insurance upper earnings limit of £50,270 has also been fixed or frozen until the 5th of April 2031, and that's UK-wide. So, what do we think this actually means and how is it going to affect people?

I would say it's a bigger issue than you first might think. This measure means that more will be brought into paying tax for the first time or paying higher rates of tax for the first time. And this is known as fiscal drag. And there's also been no change to the child benefit tax charge parameters. So again, more will find themselves potentially faced with this charge and the admin associated with it.

There's also been no change to the £100,000 cliff edge for funded childcare. So again, between now and 2031, there will be way more people likely affected by this. And we talked about this in our January webinar, so look this out if you want to know more about how a pension contribution can help massively in cases like that.

And finally the loss of the personal allowance above £100,000. This hasn't changed for years, so there will be definitely more people finding themselves paying higher than expected tax rates between £100,000 and £125,140. So, is there something that can be done when you find yourself in one of these situations?

And whilst the situations are different, as we've just said, the solution we're talking about is similar and revolves around an understanding or an appreciation of adjusted net income. So here it is then, or how it's worked out. And you know, the bit we're really interested in here is the deduct pension contributions part.

This is because the payment of a pension contribution reduces your adjusted net income and therefore reduces your income for the purposes of paying tax, paying the child benefit tax charge, being below the £100,000 limit for funded childcare, as well as the personal allowance tax trap. And it's worth saying here that adjusted net income, what we're talking about, is different from net income that we talk about when we're talking about the tapered annual allowance.

So get that out your head, if you know what I mean. In a nutshell, adjusted net income is total taxable income before personal allowance, less certain reliefs and pension contributions are one of those reliefs we get to deduct. And if they're paid net, it's the gross amount we deduct. So how do you actually work out your adjusted net income then?

Well, firstly, or step one, you work out your net income before adjusting it, you know, the closing the name, but you add up your taxable income and include things like money you earn from your employment. And you'd also include any benefits you get from your job too. Profits you make if you're self-employed including any from services you sell through websites or apps as well.

Some state benefits, mainly the taxable ones, most pension income and you would include the estate pension, company and personal pensions, and retirement annuities as well. You would also include any interest on savings and pensioner bonds, dividends from company shares, some rental income from a trust and foreign income. I think you get the message.

And then you take off any reliefs that apply. So, payments made growth to pension schemes. In other words, those that have been made without tax relief being added on, and trading losses, for example, trade loss relief or property loss relief, and that's your net income. And then it's adjusted using the following steps.

If you've made a gift aid donation, you get to take off the grossed-up amount, what you paid, in other words, plus basic rate of tax. So, for £1 of gifted donations you make, you take £1.25 from your net income here. And that's when I imagine people can forget about. Then the big one, if you make a pension contribution to a scheme where the pension provider has added basic rate relief of 20%, for every £1 of pension contribution you make, you get to take £1.25 from your net income.

And then finally, probably a minor point, but tax relief up to £100 is available if you make payments to a trade union or police organisation for superannuation, life insurance or funeral benefits. If you've taken that off at stage one, you get to add it back here. So, after all of that, you've arrived at your adjusted net income.

So thinking about the impact then a pension contribution can have on adjusted net income. We're going to have a think about how it can help someone get out of one of the tax traps. And the one we're going to focus on here is the child benefit charge tax trap. But remember, this process or method that we're going through will help in all of those other circumstances we mentioned earlier.

So when it comes to child benefit, the rules are that you or your partner may have to pay the high-income child benefit tax charge if either of you receives child benefit and at least one of you earns more than the threshold, which is currently £60,000. This means you'll have to pay all or some of your child benefit back but technically you'll have a tax charge which will cancel some or all of it out.

The charge may also apply if someone else gets child benefit for a child living with you and contributes at least an equal amount to the child's upkeep. It does not matter if the child living with you isn't your own child. And that income threshold above which you start to pay the tax charge is now £60,000, and your tax charge will equal the amount of child benefit if you earn above £80,000. And within that, you'll pay back 1% of your child benefit for every £200 you earn over £60,000. Now, if your adjusted net income is over the threshold of £60k and so is your partners’, then whoever has the highest income is responsible for paying the child benefit tax charge. And when it comes to partner, it means someone you're not permanently separated from, who you're married to, in a civil partnership with, or living with as you were.

And if you do need to pay the charge, you can pay it through PUIE and have your tax code adjusted or pay it through self-assessment if you complete one. So, let's have a look at a case study or an example of where this is very relevant. Maria is 40, she lives in England and she has adjusted net income of £70,000, and she's the higher earner in the household.

She is extremely lucky and has 4-year-old triplets who she claims child benefit of £3,148 for per year. Now, as her income is £70,000, she's halfway between the £60,000 and the £80,000 parameters where she starts to face the tax charge to cancel out the child benefit and loses it completely. So, in other words, her tax charge will equal half of the child benefit she receives.

So at the moment, her child benefit tax charge is £1,574. So, thinking about it in an in another way, for the £10,000 that Maria earns over £60,000, she's paying higher rate income tax, national insurance of 2%, and the child benefit tax charge of £1,574. So, from that £10,000 above £60,000, she gets or sees £4,226, or she has a tax rate of 57.74%.

So what's the impact then of paying a pension contribution? If Maria pays a net contribution of £8,000, this will be grossed up immediately by the provider to £10,000. That's how the basic rate relief would be awarded. She could then claim an additional £2,000 in high-rate relief, meaning that 40% in total. Plus, as the payment of the pension contribution would reduce her adjusted net income to £60,000, remember, we're starting with £70k total income and then we're reducing it by that gross contribution of £10,000. Because she's now down at £60,000, she will not face the child benefit tax charge of £1,574. So, the total tax relief received on this contribution was £5,574. This is £2,000 basic rate relief, £2,000 high-rate relief, plus the £1,574 or 69.68%, and that is £5,574 divided by £8,000. That's where that percentage comes from. So therefore, if Maria can afford to pay a contribution of £8,000, there is a very positive outcome here. It not only increases her savings for retirement but reduces her tax bill significantly.

But hold onto those thoughts though, we'll revisit Maria in a bit. Perhaps she doesn't have £8,000. You know, unsurprisingly, if she has triplets, but someone else in her close family might. So, the freezing of the tax bands and fiscal drag will definitely be a big issue for your clients over the next few years.

And we've just focused on one example. Remember those other examples or circumstances. The other hot topic I wanted to talk about in the pension side is inheritance tax applying to pensions for deaths after the 6th April 2027. And we've been talking about it a lot since its introduction back in October 2024.

And I'm sure we'll be talking about it lots more in the run up to April 2027 and beyond. I think a quick summary of the basics will be useful. So, from the 6th April 2027, most unused pension funds and death benefits will be included in the value of the estate when someone dies. The usual exemptions will apply, such as the spouse's exemption and nil rate band.

Personal representatives will be responsible for reporting and paying inheritance tax, and they will have to liaise with scheme administrators to establish values and any exemptions. If income tax is due on the pension benefits, most likely when someone has died after age 75, inheritance tax will be deducted first, then any income tax paid when benefits are taken by the beneficiary. So, depending on how that charge was paid or where it came from, that could mean a claim for overpaid income taxes made by the beneficiaries. And there are different options for paying the charge. And we covered those off in our January webinar. So, if you want to know more about that, go back to the January webinar in our CPD Hub.

Some pension benefits are not included in the estate or wouldn't be, such as a charity lump sum death benefit, a dependence pension payable from a scheme such as a defined benefit scheme. Remember, a spouse's pension would be exempt anyway, a death-in-service lump sum, and a joint life annuity where the survivor's annuity is included would be exempt too. So that was a very basic summary and like I said, we'll be talking about this a lot more during 2026 up to it being implemented from April 2027.

But now we're going to have a think about the impact inheritance tax applying to pensions could have on a family and what some of the options are. We'll have a think about pensions first, then Gregor will discuss the protection options in a little bit. So, making gifts during your lifetime, obviously while you're still alive, which are exempt from inheritance tax, can be an effective way to reduce your estate for inheritance tax purposes. But one way of making that money go a bit further or work a bit harder is instead of gifting that money as cash to someone, instead make a third-party payment into their pension instead.

This is the added benefit of tax relief and obviously boost the recipient's retirement fund. And when it comes to tax relief on third party payments, it's the recipient who claims any tax relief. So, a contribution would receive immediate basic rate relief as normal, but if any higher or additional relief is due, it would be the recipient who would claim it.

In this respect, a third-party payment is really just an individual contribution. It's just someone else happens to have paid it. Also, we're seeing here that an employer payment isn't a third-party payment as they're paid gross. So, if someone pays into someone else's pension, the net amount is the amount of the gift for an IHT purposes, hopefully exempt under the normal expense rate of income or the annual exempt amount rules.

Also, remember that this only works if the recipient is actually eligible to pay a pension contribution themselves. So that would be £3,600 gross or £2,880 net for non-earners, obviously resident in the UK, and up to a 100% of earnings for those with earnings less obviously what they've paid in already in regards to pension contributions.

So thinking about families with an inheritance tax potential problem, maybe even more so when pensions are added in, regular contributions to pensions made by third parties can be a very tax effective way particularly if they're exempt.

So, let's go back to our case study then with Maria. Maria still has her triplets and still earn £70,000. We looked at previously how effective her paying a gross contribution of £10,000 was. She received tax relief and didn't have to pay the child benefit tax charge. But if someone else makes that payment as a third-party contribution, then she still receives a tax relief, and she doesn't have to pay the child benefit tax charge.

So, a third-party payment reduces adjusted net income as if you've actually just made it yourself. Now, Maria's dad Martin has a large pension fund of £750,000 that's in drawdown after taking his tax-free cash. So, he has more than sufficient income for his needs, and he is keen to reduce his estate during his lifetime by making tax-efficient gifts, particularly thinking about his pension being included from April 27th.

So let's have a look at what Martin can do. Firstly, he could use the normal expenditure rate of income exemption, as well as the annual exemption to make third party contributions and kickstart the triplets’ pension planning. The net pension contribution is the amount of the gift for inheritance tax purposes, so that would be £2,880 multiplied by three, or £8,640 is the total inheritance tax exempt gift each year here.

Each £2,880 would be grossed up to £3,600 by the provider immediately. And the IHT saving on this would be 40% of that £8,640 or £3,456 each year. So, if Martin did that every year until the triplets reached age 18, they would have £77,683 each in their fund. And that is assuming a 5% growth each year after charges.

Assuming, they didn't make any contributions they've reached 60. That would be £602,942 they would have in their fund again, that 5% growth after charges. So, whilst that looks quite good, let's go back to Maria, and it looks even better for her if she receives a pension contribution paid by Martin. Adding on the tax relief she receives, as well as not paying the child benefit tax charge to the IHT saving means that a lot of taxes saved. If Martin pays a net contribution of £8,000 into Maria's pension plan, she'll receive that basic rate relief of £2,000, the high-rate relief of £2,000, and the child benefit tax charge saving of £1,574. If we add on the tax relief there that we talked about for the triplets as well as the IHT saving of £3,200, which is 40% of the £8,000 gift he's making here under £3,456 IHT saving for the triplets.

That's total tax relief of 86.48%. In other words, very worthwhile. So, I hope that case study sort of shows the benefits of paying a contribution and how being paid as a third-party contribution can help reduce the recipient's income tax bill. But obviously the potential IHT savings too.

Now before I hand over to Gregor to think about some protection aspects, we often read about the numbers of individuals failing to claim any tax relief they're due. And if tax bands are frozen until 2031, then tax relief not claimed, will presumably only increase each year too. So, as a reminder, then you can claim tax relief through your tax return. You can also make a standalone claim too at any time in the tax year. Or you can write to HMRC.

Remember, if you pay into someone else's pension, it's the recipient who has to claim the tax relief above the basic rate. So that's worth a reminder to them. If you are making that third party contribution, and remember the extra bans in Scotland too, your clients could be entitled to that 1% tax relief if they're paying tax at 21%.

As you can make a standalone claim, I would say fear of completing self-assessment shouldn't be a reason for not claiming the tax relief that you're due. And finally, we've talked a lot about salary sacrifice recently due to the changes coming in 2029, and we covered this off on our January webinar too, if you want to go back and have a listen.

But I've got it on this list as one of the benefits of salary sacrifice is that your contributions are converted to employer contributions and are paid gross, so you get your tax relief immediately. There's no need to wait or claim it yourself later on. So that's a great benefit of salary sacrifice and that benefit is going to remain after 2029, as there's no change to the tax relief on pension contributions, it's only a national insurance change.

So that's all I was going to talk about regarding hot topics and pensions. Now I'm going to pass to Gregor who's going to talk about protection hot topics. Thanks, Gregor.

Gregor Sked: Brilliant. Thanks Fiona. Some really great insight there and I'm actually, I'm not going to change tack too much because it's probably no surprise that one of the hottest topics in protection at the moment is the role of protection within estate planning.

Of course, estate planning as we've seen is really rapidly moving towards a more mainstream financial priority for many clients, really a combination of what Fiona's touched on there. Upcoming IHT rule changes, frozen thresholds, higher asset values, and I suppose a sense of widespread client unpreparedness.

It does mean that advisers will increasingly need to be bringing protection into the conversations that they're having and viewing it not as an add-on, but a really, a core part of safeguarding family wealth. Now, I suppose the changes that we saw in the spring budget of 2025 have hit press headlines a lot.

There's been a lot of headlines looking at the changes, and one of the things that we've found is that awareness amongst clients is still low, but obviously the impact is still very high. Now, a YouGov survey recently identified a fairly big disconnect. What they found was 75% of UK adults are not actually aware of the planned 2027 rule change.

38% of mortgaged homeowners think they'll be affected and only 13% plan to gift money proactively while they're still alive. Now, this tells us that IHT, of course, is widening. That net is widening. Possibly even faster than consumer understanding. Now, again, as adviser community will be gathering by now is that we need to bridge that gap.

Protection is going to be one of the simplest tools available at your disposal for creating that certainty amongst what is a fairly uncertain point in time. Now we can also be certain that IHT receipts are heading in one trajectory. They're heading up. In January this year it was reported that inheritance tax receipts jumped to a total of £6.6 billion through the first nine months of the current tax year.

Now, these figures really do continue that upward trend that we've seen over the last couple of decades as frozen thresholds, higher value assets continue to hit estates, and really what that's going to be doing and is doing is extending a lot of that fiscal drag that many of us are feeling.

Estimations put inheritance tax receipts on track to actually exceed last year's £8.2 billion potentially hitting record figures, so that growing IHT liability isn't just a tax calculation. It does become quite a significant liquidity problem for many. I think families who inherit liquid assets, so property, land, business interests, pensions, that are now caught by IHT, they may be forced into a position that they're not really comfortable being in, whether that ends up in distressed selling, maybe borrowing on unfavourable terms, or actually delaying the entire estate administration process altogether. But I suppose the real challenge for families isn't just calculating the tax due, as I mentioned moment ago, that is obviously a big issue, but it's about making sure there's liquidity there, making sure that there's liquidity at exactly the moment that liability arises.

So what are the solutions that we are seeing advisers look towards? Well, over the last few months, we've certainly seen a big increase in conversations happen around a lot of these, particularly like some guaranteed whole of life policies. This is ultimately the foundation of IHT protection plan. It's about providing that guaranteed sum assured for life premiums will stay the same.

It's ideal with the IHT bill is known or maybe expected to remain relatively high, and it gives that certainty something I've mentioned a few times already, and it's really particularly useful for those clients that have the liquid assets, property business interest that maybe beneficiaries don't necessarily want to sell.

We've also seen a big increase in conversations happen around reviewable whole of life. So, a more flexible, often more cost-efficient option, especially when clients are still looking at it, reducing their estates. There may be ongoing strategies taking place and premiums generally earlier in the lower years but will change from the first period that it reaches its review stage.

What that can allow to happen is the sum assured to be reduced or adjusted as the estate reduces as well. It's perfect for clients that are gifting, maybe moving assets during that period leading up to any IHT changes. And what it does is buy a bit more time, maybe once I said more complex strategies are going on in the background or are currently being worked on.

As we work around this little clock here, we've got gift inter vivos, so cover here that reduces the inheritance tax liability that applies to gifts made during lifetime. These policies mirror the taper relief rules exactly, and it's been providing cover for the seven-year period where potential exempt transfer might still attract tax.

Now it's essential for clients that are making larger gifts, such as helping children, maybe with property deposits, and again about ensuring recipients aren't left with unexpected tax bill if the donor dies early, it’s about making sure there's liquidity there when it's needed most.

Joint Life Second Death as well, let's bypassing trust for a moment. So Joint Life Second Death policies. I think when we look at the actual product angle for a moment, they're designed to pay the exact point that the inheritance tax bill arises, which is usually on the second death of a couple, and that they're more affordable than your whole of life policies. And they work especially well for couples that may be asset rich but cash poor.

Now jumping back to trust for a moment. So, I'm going to touch on trust in a bit more detail shortly. But they play a vital role across all of these solutions, because when we put policies into trusts, it's about making sure the payout is outside the estate, avoiding probate confirmation delays.

But it means the beneficiaries can receive the money quickly and hopefully that money's needed to pay any liabilities. It means it can be paid to HMRC quickly without needing to sell assets, borrow funds, and so forth. Really trusts are not an optional discussion within IHT planning. They are what makes protection work efficiently.

I also want to add in here relevant life because I think it is worth mentioning even just briefly that it's a very key option with within a lot of conversations that you might be having with clients because it remains a very highly attractive solution. When we're seeing income tax, national insurance thresholds still frozen, and actually that's been putting a lot more pressure on higher earners and directors, we were seeing relevant life policies really come to life is the fact that, of course can be funded by the business in a tax efficient way, and importantly sit outside of the pension framework. So, what that means is they're not impacted by the new rules that we're seeing bringing pensions into the IHT net from 2027. So, for business only clients, this can be a really good way to complement any personal planning that they're doing as well with regards to their estate, without actually distracting from the core state liability discussion that we're having about framing it all together essentially.

So what all links these solutions together? It's that word ‘certainty’ and a landscape where tax rules are tightening, clients are often unaware of the impact protection products give control and certainty back to the family.

As we've just seen, protection does play a really crucial role in creating that famous word certainty around the future inheritance tax bill.

But once you've identified the right type of cover, the next question is how do we actually hold that policy to make sure that it performs properly in an estate planning context? And this is where the conversation tends to shift from the product itself into the trust structure that we wrap around it.

And many protection plans that are used for inheritance tax planning do end up inside a discretionary trust because that's what ensures the proceeds fall out of the estate and are available quickly to pay HMRC. Remember, discretionary trusts also sit within the relevant property regime, so that means that they may face periodic and exit charges.

So as advisers, how can we remove or significantly reduce some of those trust charges, especially as more and more clients are starting to look towards solutions like whole of life policies, and so potentially putting larger policies like that into trust and maybe mitigating some of the increased IHT exposure?

So this brings me nicely onto a second hot topic that we're seeing, which is around Rysaffe planning. So, Rysaffe planning, is something that you might have heard the phrase before but might not necessarily be very close to. Rysaffe planning, really takes its name from a court case of Rysaffe, a trustee company versus Inland Revenue Commissioners from 2003.

In the case, there were two brothers, the settlers effectively, who created five trusts each on different days. Now, the Inland Revenue tried to argue unsuccessfully – key thing to note there unsuccessfully – that although the trusts were created on different days, they were one trust for tax purposes.

Now, I mentioned a moment ago that protection policies are often written under discretionary trust, and it's probably worth expanding on why that's the case. Because when we use a discretionary trust, the trustees have a fairly broad range of powers. And that includes full discretion over who benefits and also in what circumstances.

Now, unlike a bare trust, again, can often be seen in the protection landscape where you have a named beneficiary that has an absolute right to the trust property, a discretionary trust does not give any individual a guaranteed entitlement. Instead, there is often a pool of potential beneficiaries who can benefit if, and it's if, the trustees decide that they should.

To help guide those decisions, as I would always suggest is a good practice, is to make sure that a client has put a letter of wishes in place so that the trustees understand how the settler would like the benefits to be distributed. Now, as I mentioned a moment ago, the discretionary trusts sit within what's known as the relevant property regime.

So what that means is when somebody transfers assets into discretionary trust, that transfer is treated as a chargeable lifetime transfer for inheritance tax purposes. Now, if the value transfer exceeds the available no rate band after any exemptions, it may incur a lifetime inheritance tax of 20%. So, there are three key points in a trust lifecycle where IHT can apply.

Firstly, when it's set up and funded. Secondly, at each 10-year anniversary. And lastly, when the trust assets are paid out. Now, you probably see these referred to as an entry charge when the assets are placed into the trust, note that's the rate of which is 20% above the available nil rate band. Again, that's generally seen as being half the death rate of 40%, typical IHT rates. That periodic charge, which happens at every 10-year anniversary, now it's based on the trusts’ value. Now, that charge is officially a maximum of 30% of that lifetime rate of 20%. So, what that means is that it tends to result in a maximum charge of 6%, again, levied on the amount of the trust fund that exceeds the nil rate band.

Now, that exit charge I mentioned as well. So that's applied when assets are distributed to beneficiaries, and this is based on generally effective rate at the last 10-year charge. Now the reason that these rules are in existence, well they're there to make sure that assets held in discretionary trust remain within the inheritance tax system rather than being passed down multiple generations without any inheritance tax being paid.

Now, not all trusts fall into the relevant property regime though. So, as I mentioned a moment ago, a bare trust, as an example, will sit out with the relevant property regime, the understanding whether a trust is in regime or out of regime, I would say it's a really important thing to think about because it does matter and it can actually help to determine whose estate the assets will fall into. Where a trust is within the relevant property regime, the trust assets are effectively not in anybody's estate for IHT purposes. So, what does this all mean for term policies? So, protection policies written into a discretionary trust after the 22nd March 2006 will fall into the regime. Now, although most premium protection plans typically have no entry charge, because the value of a gift is only the premiums which is generally covered by various exemptions, a term policy error might have a value in one of two circumstances.

Firstly, where the proceeds from a claim are paid into the trust and remain there at the 10-year anniversary, or where the plan has a market value. In other words, the life assured is in ill health at the 10-year anniversary, and any exit charge will depend on the rate of the previous period charge, so it is likely to be nil in most circumstances.

Now, as I mentioned earlier, a lot of the budget changes that we have seen have actually meant that that IHT net is a greater scope of getting wider, and a lot of advisers are now looking towards protection solutions to help clients with their estate planning. Naturally what we've seen recently, of course, is the likes of whole of life policies growing in popularity as well.

But whole of life policies can often be large in nature, and there is often a bit of a misunderstanding that as modern day whole of life policies have no investment value, then there's no trust value in which to make a periodic charge. In reality though, the value of a whole of life policy will actually be the greater, or firstly, the open market value. The total premiums paid at the 10-year period, the 20-year period, and so on, you get the gist, or where claim proceeds are paid into the trust and remain there at the 10-year anniversary. So the thing to think about here, and this may be relevant to a lot of the whole of life policies, the larger policies that you are writing, is that for particularly large whole of life plans, a periodic charge could occur if the total premiums paid at each 10-year anniversary exceed the nil rate band.

Now, just to bring this to life a little bit, I've got an example here. So, let's consider, we have a gentleman, he's taken out a whole of life policy. It's a single life plan. The client's 63 when the plan was taken out and has a sum assured of £1.5 million, the annual premium, £36,976.04.

Now at the 10-year point, the total amount of the premiums paid equate to £369,760.40. Now that exceeds the nil rate band by about £44,760.40. At the 10-year anniversary of the trust, that periodic charge, in this example, at the maximum 6% would be applied on the amount of the premiums over the nil rate band.

Now what we can see there that equates to about £2,685.62. At the 20-year anniversary, we go through the same steps, and again the 10-year anniversary, from there, we go through the same steps again. Now this is really where everything we've looked at comes into practice, Rysaffe planning can actually be employed here to reduce or remove some of those periodic charges because that sum assured of £1.5 million when we've applied Rysaffe effectively divides into four separate policies. In this instance, we've gone for four separate policies of three £75,000. Each policy is written into that discretionary trust on consecutive days.

That's the key parts written into the discretionary trust on consecutive days. What that does is then gives each trust its own nil rate band for the purpose of calculating period charges. Now as the total premiums paid in respect of each trust at the 10- and 20-year mark are below each of the individual trusts in nil rate band, the periodic charge for each trust is nil. I’ll caveat this by saying it's not going to be something that impacts all of your clients. It might not impact a lot of your clients, but as IHT planning is growing, it will inevitably be something that more clients will need to have more careful planning around.

Okay, so the last part of the webinar today, I want to focus on what I personally think is one of the hottest topics in protection at the moment  in regard to the hotly anticipated FCA's Pure Protection Market Review. And I appreciate everyone in the call will have been eagerly awaiting the arrival of this at the start of February.

Now, whilst it sounds niche, it is something that I think spans across the entire industry because, imagine we've got a client that has maybe got the perfectly constructed investment portfolio. Maybe they've got a well thought out pension strategy, but they've got no income protection, maybe no mortgage protection, maybe no protection for many from an inheritance tax perspective.

One of the things that the FCA were trying to address or are trying to address within the market review is how do we protect the mass market from life shocks, and we all face some life shocks over time. So, this was really why they launched a major review in 2025 into the pure protection market.

And it tells us a lot about where advice regulation is actually headed next. And I mentioned a moment ago, at the beginning of February this year, we got a glimpse at the FCA’s interim reports on the pure protection market. Now, there was quite a lot to digest, albeit it was a relatively short document, and actually it's a really positive story.

So I would encourage you to have a look through it, but it really is a positive story. So firstly, the FCA found that, they were very clear anyway, the Pure Protection market delivers strong customer outcomes, or certainly strong consumer outcomes. What we found was in 2024, 98% of all protection claims were paid, around £275,000 claims equating to £5.3 billion.

That's significantly higher than we see in many other insurance classes. Secondly, the review found that the market offers healthy choice. So, across term, critical illness, income protection, and even whole of life, customers have access to a wide range of products and optional features that can be ultimately tailored to different needs.

That level of competition helps drive product innovation, and they found it helps keeps providers focused on quality and value. The FCA also highlights in the report how vital intermediaries are. Around 80% of sales come through advice in the protection space and the FCA recognised the really valuable role that advisers play in helping consumers navigate complexity and actually taking action.

And I think we can all appreciate intermediaries are major driver for engagement and ultimately help ensure that people get cover that's suitable for them. Technology as well. Another real bright spot within the report. So, the FCA sees things like underwriting technology, digital engagement tools and improved adviser platforms as a real contributor to a much smoother customer journey.

Innovation, a key word there, is really enabling more personalised recommendations and making that process quicker and less intimidating for consumers too. And finally, the FCA believe pricing is broadly aligned with fair value. They do reference premium dispersion and actually reflect in legitimate factors of things like underwriting risk, policy features, distribution dynamics.

Within the claim’s ratios, typically above 50%, there is evidence that customers are getting good value relative to what they're paying. As I say, overall, it really was a very positive assessment with the FCA acknowledging that the protection market works well for consumers in many areas, particularly around outcomes, competition, and the course, the role that advice plays.

Now since the initial consultation started early last year, there was a lot of speculation over where the FCA would focus their attention within the pure protection market. And a lot of the industry had their own views over areas that they think they thought the FCA should look at or would come back on with concerns about.

Now, of course, we looked at the positives there, there were a few areas that the FCA found as potential areas of concern within the report. Now, firstly, the protection gap remains large. The first and I would say most significant concern is the sheer scale of the protection gap. According to the FCA, 58% of UK adults held no form of protection at all, and of those 59% have never considered their protection needs. And I think this reinforces what many of us already see is that consumers either underestimate the value of protection or maybe just don't engage until a life event forces them to do so, by which point it can very well be too late. And the FCA see there is a bit of disengagement here and they actually see this as a bit of a systemic issue, not something that the market is currently addressing effectively.

From a product perspective, interestingly, income protection was a particular focus area now it actually had the lowest claims ratio across all protection product sets, sitting at around about 40%, which I suppose immediately raises the question around the perceived value of income protection.

I think it also highlights the higher uncertainty and potential larger capital burden that providers face. So, whilst income protection is essential for a consumer resilience, the regulator does see that there is a big area, a big opportunity here for a much clearer value to be seen with it.

And actually you can suggest an improvement in how customers understand the benefits and also limitations as well. From a claims perspective. So claims acceptance rates across the pure protection market remained high. There is persistent weakness in the overall claims experience, and again, that was something that was quite clearly sought out within the report from the FCA.

So they're saying that they saw a potential risk in the overall claims experience actually undermining the consumer outcomes that the consumers could get to face. Alongside this, the FCA emphasised that adviser-led actions at point of sale, so, what they mean by that were things like placing policies into trust, encouraging each of beneficial nomination, supporting wills, powers of attorney conversation, they say play a really crucial role in smoothing that claims process. Yet these practices are very inconsistent and actually not embedded widely across the sector. So, the FCA considers that this is an area where really more proactiveness needs to be looked at. Maybe standardised intermediary engagement can actually help improve consumer experiences and again, deliver outcomes better aligned with the consumer duty.

Across, or at least amongst, I would say, industry speculation from the last 12 months, one of the areas that cropped its head up a lot was the issue of commission within protection. They noted within the report lapse spikes immediately after clawback periods. Behaviour sometimes suggests some switching or churn may be influenced by financial incentives rather than customer need.

They did note that they don't believe it causes significant harm, but the pattern is clear enough that the regulator wants to understand the drivers and ensure that advice has always been aligned to good customer outcomes, not just a commercial timing. And we're also very keen to make sure that any action taken to address this really should be proportionate.

So it, it doesn't feel like there's going to be any drastic changes based on the interim report. We can highlight in the fact that there is still an interim report. An actual fact I think looking at the bigger picture, the interim market study does exactly what we would expect from a market study. It gives the overview of the workings and outcomes from a particular market.

And if you do read through the report, you may well have your own takeaways, your own thoughts on it and maybe your own thoughts on where we go from here. I've got three particular areas in my head that I think that the report quite high, clearly highlights, is where we might go from here.

So as the FCA is very clear that protection does deliver value, but that perception and engagement are a bit of a challenge or maybe even one of the real problems that we face. Now, for anyone that's dealt with the protection industry for any length of time you'll realise that this isn't a new problem.

The FCA haven't just all of a sudden identified a protection gap. We've used the phrase, the protection gap for years, and I think the fact that the FCA are now using similar language is actually a positive indicator. When we think before the interim report, how frequently were we seeing the bodies like the FCA refer to the protection gap, whereas the fact that's mentioned within a report of this scale, I think it's a really important sign to see that we're actually all moving forward with this in a sort of joint up position.

The report also concludes that the market works well in many respects, but there is work to be done for the benefit of the millions of people who would benefit from protection, but maybe because of a lack of awareness, misconception, even affordability concerns or maybe processes within the sales process that have some friction within it, that they don't actually have the cover that they need. From an intermediary perspective, something that we need to bear in mind is that to demonstrate value, we can't just think Rysaffe or features. We need to think about outcomes, and we need to think about how we actually get people to act and the behavioural prompts that they might need. So that could be things like claims stories that can help shift the mindsets of clients, get them to realise that the risks that they face could have a significant impact on their and their family's financial resilience.

I said a minute ago, the FCA didn't go after commission, which some people have considered questionable, but they are very focused on customer value and outcomes. I think the ask is for the industry to collect, to monitor, to report better data on switching, to make sure that switching, as an example, is being driven by consumer needs rather than remuneration.

They are considering using existing rules or introducing new guidance or metrics to try to deter that churn. Some have suggested ideas of individual reference numbers for protection advisers, maybe even mandating the reporting of lead generations and lead generating tools. But I think ultimately advisers and providers we do have in a really important role here.

I think we are going to be increasingly seeing that important role to demonstrate the value that we're bringing to customers through the quality of services that they're offering, and we are offering, particularly where commission negotiated has made as high. I think none of this is really new as this is all what we should really be doing under consumer duty, but I think we're going to be seeing a much greater emphasis on it.

Also importantly, if the FCA are not proposing commission bans or caps at this stage, they are watching behaviour. They're not banning business models yet. But also lastly, just something to touch on with regards to the claims outcomes or the customer experiences that was highlighted within the report.

It's a really interesting one because when we think about claims, that is often seen as the moment of reality. It's the moment where the advice that you've given clients is tested and as we touched on a moment ago, the FCA are explicitly calling out things like the setting up of trusts, the use of wills, powers of attorney, and they've said that they want to encourage those practices more widely within the pure protection market.

Personally, I'm really interested to see how the final report actually looks at some of those practices and maybe how do we standardise them across the market. But it all does tie into consumer duty. Good outcomes aren't just about product selection. They're about making sure the product actually works when it's needed.

We've heard this a long time when we've been talking overlook over a long time when we've been thinking about consumer duty, trusts, beneficiary nominations and estate planning all becoming part of the outcomes journey, not just optional extras. And we know that trust and beneficiary nomination is of course becoming more common practice, but it is far from where it needs to be.

So claims outcomes really should be the starting point of the sale, not just at the point of the claim. Now that brings us to the end of our look at what advisers have been asking us at the moment. And we've just got a very brief reminder here of our learning outcomes. And just a reminder that your CPD certificate will be sent to you by email after today's webinar.

It may take up to 24 hours to arrive, and before you’ll be able to access the certificate, there will be a few webinars related questions that you need to complete now, and during this time the no need to follow up with email. You just how expect the email within the next 24 hours. So today we've touched on subjects spanning both pensions and protection.

Our adviser website you can access through the link on screen, and from there you can access more information on pensions, protection, equity release and many other solutions available from Royal London. Any questions that you've been kind enough to send across throughout today's webinar will be followed up with directly.

And if you'd like a date for the diary, our next webinar is on Thursday 26th March, and we're going to be looking at workplace pensions and business protection. So certainly, a date to have in the diary there. And there'll be more information shared over the next few weeks as to how to register for that.

I think all that's really left to say is on behalf of Fiona and myself, thank you so much for joining us today. Thank you.