The government has confirmed it will no longer provide tax relief on individuals' contributions which are used to fund pension term assurance policies.
In the Budget report, the government says it has become clear providing a meaningful link between term assurance contracts and pension saving is neither practical nor commercially-viable because of the additional administrative burdens this would impose.
It says the conclusion is consistent with the experience pre-A-Day, where rules for members of personal pension schemes requiring term assurance premiums to be no more than 10% of pension contributions made the products not commercially viable.
It states: “Therefore, in line with the principle that pensions tax relief is provided to produce an income in retirement, and to provide certainty going forward, the government confirms that it will no longer provide tax relief on individuals’ contributions that are used to fund personal term assurance policies.”
For contributions under occupational pension schemes, this will apply where the insurer received the application for the policy on or after 29 March 2007 and for contributions under other registered pension schemes, it will apply where the insurer received the application for the policy on or after 14 December 2006.
The government has also stopped customers varying the terms of their current PTA policies by announcing any ad hoc increases will mean they cease to be entitled to tax relief on premiums. Exercising the guaranteed insurability option (GIO), however, will retain tax relief.
Andy Milburn, IFA market manager at Royal Liver, says: "HM Government has helped providers and distributors to waste millions of pounds by missing the fact that they never really intened to re-introduce PTA in the first place during pensions A Day.
"It's a sad day for the industry but we'll carry on regardless. Hopefully, the next time HM Government decides to offer the industry and our customers new opportunity it will be one that they mean to happen, not one that they develop by accident," adds Milburn.
Nick Kirwan, protection market director at Scottish Widows, adds: "U-turns like this send out completely the wrong message to consumers about the need for protection. We worked hard with the Treasury to get to an acceptable middle ground position and were confident we could reach a workable solution to link PTA to a pension.
"This is a severe blow for consumers who will no longer have a tax incentive to protect their family. It's also a severe blow to the industry which collectively invested and lost around £35m in developing products and systems. As the government only introduced PTA less than a year ago, the u-turn has left it with sub-scale portfolios to administer for the next 25 years or more."
Alun Beynon, head of individual protection at Aegon, says: "The stated aim of this Budget was to encourage savings and to support and strengthen families. This announcement actually undermines both of these key objectives.
"PTA offered an affordable term assurance product for the mass market. We feel this is a wasted opportunity to tackle the growing protection gap. Indeed this could well turn more people away from seeking this type of insurance at all. This is the opposite of 'good regulation'."If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7034 2680 or email [email protected]. IFAonline
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