Popularity of waiver of premium benefits, which was previously bundled as an addition within pension...
Popularity of waiver of premium benefits, which was previously bundled as an addition within pension premiums, has reached an all-time low as some insurers without a general insurance arm are closing shop to this product.
Before the introduction of Stakeholder pensions in 2001, waiver benefits were bundled into personal pension premiums, resulting in the whole premium benefiting from tax relief.
In the post-Stakeholder era, the Department of Work & Pensions and the Inland Revenue ruled contracts must be separated, as waiver premium was no longer able to receive tax relief.
A separate issue for waiver entitlement means more work for insurers, says Elenor Downie, chartered insurance practitioner of IFA O'Halloran & Co. A separate Banker's Mandate Authority and even a separate application form are required in many cases, she adds.
"Some insurers (Scottish Life being one) have decided that they can no longer provide waiver benefit and, although the pension policy may be competitive, the waiver facility is therefore not available", says Downie.
"It is extra work to do a policy for a few pounds a month. There are two direct debits coming out, and extra admin, so for insurers like Scottish Life with no general insurance arm, there is no point in offering it," she adds.
Alisdair Buchanan, head of communications at Scottish Life, says that the insurer has continued to provide waiver benefits after the April 2001 ruling, but it is underwritten by Pinnacle Insurance.
Under a new name, the 'Payment Protection Insurance' has been outsourced to Pinnacle Insurance as it is more commercially viable than keeping it in-house, says Buchanan.
It seems like a u-turn from the days of the PIA when IFAs were encouraged to discuss waiver benefit in conjunction with all personal pension contracts.
Downie makes reference to a court case during the 1990's where a client sued an IFA successfully for loss of pension entitlement, when he had to stop work as a result of ill health, on the basis that he had not been advised of the possibility of including waiver within his policy.
But Downie does concede that O'Halloran has not received many waiver claims over the years. And Buchanan says that waiver premiums have generally been decreasing in importance.
Both agree that despite the fact that it is not as attractive to provide waiver premiums as before, it is still important to be able to give people the option to protect their retirement plans.
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