Bloomsbury Financial Planning

At present, only a few providers are offering the option, but Lutine Assurance has reached agreements with a small number of pension providers, including Rowanmoor Pensions, to offer a policy of life cover through small self-administered schemes (SSASs), group self- invested personal pensions (Sipps) and family pension trusts.

The scheme compares favourably with standard insurance policies paid from personal resources, says Jason Butler at Bloomsbury Financial Planning. It also makes a useful tool for those in professional partnerships who want to buy insurance and gain 40 per cent tax relief on the cost of the policy.

Premiums are paid towards the insurance by the pension scheme rather than the individual, and the death in service benefit is paid to the trustee, thereby avoiding inheritance tax.

"Basically, you can't really have life assurance in pensions," says Danny Cox at Hargreaves Lansdown. But by making payments via a group life assurance policy rather than an individual policy, the scheme avoids falling foul of the government's decision to ban the provision of tax relief for contributions to pension term assurance at the end of 2006.

In 2001, when the stakeholder pension rules were introduced, the government restricted the amount of contributions that could be paid to life assurance with tax relief to 10 per cent.

Then in 2006, restrictions on the level of premiums that could be paid to pension term assurance were lifted entirely to encourage greater long-term savings. Higher rate taxpayers were able to get 40 per cent relief on their contributions, meaning the cost of £100 of life cover was £60.

Pension term assurance was sold as a standalone product, without an accompanying pension. However, a flood of people then started buying life insurance products in their pensions just to claim tax relief on them.

So, a few months later the government performed a second volte face in the December pre-Budget report and decided that no life assurance payments could be made through pension contributions.

Suddenly, the option to purchase cheap life insurance within a pension wrapper was closed. This was proclaimed as a severe blow to the life assurance industry, which had invested heavily in promoting the products.

The Lutine scheme has not been picked up by large numbers of providers to date, perhaps because it is not seen as a mainstream product, says David Seaton, director of Rowanmoor Pensions.

It offers trustees the opportunity to take out life assurance through a pension because although individuals may not pay money into a pension life assurance plan, trustees can provide individual cover through a group life assurance policy and deduct the cost from the individual's pension scheme.

Seaton says that the second advantage Lutine offers is the chance to get up to £600,000 cover without a medical examination for those under 50. This means that the cover can be obtained with minimal fuss and relatively quickly.

Lutine Assurance describes it as a scheme aimed at wealthy individuals in employment and says that the provision of cover without a medical is a key difference between its scheme and those of others.

"Our consultations on the life market showed that the length of time it took to obtain cover was one of the main deterrents to customers," says Mark Osman at Lutine. "So we devised a scheme where members can join provided they answer four questions in the correct manner."

"The new scheme makes a lot of sense," says Malcolm Cuthbert at financial advisers Killik & Co. He believes the government was wrong to change the rules on life cover through pensions because pension term assurance allowed many people to gain essential cover.

Cuthbert thinks that as employers move away from group money purchase pensions towards group Sipps, the option of purchasing life assurance in this way will become more popular.

"There will be a market for it because employers will still need to provide life cover for their employees and in this way they can gain tax relief on it," he says.

The option to purchase life assurance through a group Sipp is a way of replicating the advantages of the old money purchase schemes for both employer and individual, but with the added benefit of greater investment choice, says Cuthbert.

Butler cautions that the option is only suitable for those who already have or are already thinking of purchasing, a Sipp.

"If you have a reasonable-sized pension fund then buying life cover within in a Sipp wrapper is an interesting way of doing things, as long as the fund and life policy proceeds remain within the lifetime allowance" he says.

"It's surely better than buying premiums out of income that's already taxed," Butler adds.

The possible catch is that the policies are priced only one year at a time, rather than over long periods.

This means that if premium costs increase over time, the scheme could be a more expensive proposition than an average policy.