Pension Term? We’re waiting for Assurance, Gordon

Consumers and advisers are waiting for the chancellor to end the current confusion surrounding the flexibility of pension term assurance (PTA) products.

In recent weeks protection specialist LifeSearch has received enquiries from clients looking to exercise the GIO (guaranteed insurability option) under their existing PTA policy. This is where the customer can increase their existing amount of life cover, without underwriting, in the event of a major change in their lives, such as marriage, a new mortgage, or the birth of a child.

However, right now LifeSearch, and the industry alike, should not advise existing policyholders to exercise the option until Treasury reveals whether or not any increases to existing policies will incur the loss of tax-relief. As such, all that can be done to is inform clients of the current confusion and write a separate new policy, without tax-relief. Or wait.

PTA BUDGET Q&A

Why should consumers be interested in PTA?
Most people need some form of financial protection and for many consumers PTA policies are the lowest cost form of Life Cover available.

Can consumers buy new PTA policies?
No. Product providers removed their products from sale immediately after the pre-budget report in December.

Will consumers be able to buy new PTA policies after the budget?
Possibly, it depends what the Chancellor says on, or before, 21 March.

Can consumers make amendments to existing policies?
We strongly advise consumers not to do so until Treasury confirm whether or not policyholders could lose tax relief as a result.

Kevin Carr, Head of Protection Strategy for Lifesearch, said: “Consumers with existing PTA policies should be careful not to make any changes to their policies until the new rules are made clear. We expect and hope that the Chancellor will give clear clarification in the budget on 21 March, if not before.”

Despite the name, PTA is not a pension. It is life cover, as most people know it, with a few additional rules and the added value of tax relief on the premiums at either 22% or 40%, depending on the individual’s tax rate.

The new rules governing Pension Term Assurance came into force on 6 April 2006. However, these were suspended in the Pre-Budget Report on 6 December 2006 and resulted in the policy being pulled by many/all providers. However, nothing was mentioned about GIO options, which has resulted in the current confusion.