The Government is looking at changing the rider benefit contribution regulations in light of its pro...
The Government is looking at changing the rider benefit contribution regulations in light of its proposed defined contributions pension regime
The need for waiver within personal pension products may have lessened as a result of the Inland Revenue's proposed regime and the industry's view is being taken on whether or not the inclusion of premiums within the pension is too complex
Waiver, along with life insurance, has typically been sold as part of a pension so that it can obtain the same tax benefits up to a limit. This has been limited to no more than 5% of earnings for life assurance and 25% of contributions for waiver of contribution benefits
Up until stakeholder was proposed, waiver was an essential part of how IFAs recommended pension products
Roderic Rennison, retail director at Mercury Life, said: "In the past there have been professional indemnity issues where lack of waiver in a product has hurt IFAs. It is considered best advice to recommend a product that has this option
The Government has now proposed to break the earnings link for contributions up to £3,600. It will also allow scheme members to continue paying their earnings-related contributions for up to five years past the date employment ceased. After that they would revert back to an annual limit of £3,600 even if they were not working
This would allow someone who has lost their job either through an accident or redundancy to continue to contribute to their pension
Rennison said: "This will make waiver less necessary for a large number of clients but it still needs to be an available choice for the scheme members. It will depend on the client but the option should remain
It has been argued that the true cost of insurance bundled with a pension product is not transparent and high cost, poor value insurance is being disguised by the tax relief given on the premiums, according to the document issued by the Revenue
By bundling insurance products within the pension, members do get tax relief for the product but it cuts into the member's overall pension allowance. At the moment there are two main ways to incorporate rider benefits. Individuals can buy cover on either a level or a single basis in which the premiums become more expensive the older they get
Typically rider benefits can add an additional 2.5% to the cost of the pension, although this can be below 1% on a group personal pension, according to Mercury
Rennison said: "If the Government is looking for stakeholder to provide waiver then it will have to be on top of the 1% charging cap but I wouldn't expect that to be the case. If the employee chooses to have waiver then they should choose to pay for it on top of the product
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