The Treasury and HMRC have confirmed customers who applied for pension term assurance policies on or before 6 December will be treated in the same way as those whose policies have already been issued.
In a statement released today, HMRC says so-called pipeline cases – where the policy was applied for on or before 6 December but had not yet been issued – will continue to benefit from tax relief and will be unaffected by the announcement in the pre-Budget report.
Where an application was fully completed but not received by an insurance company on or before 6 December, HMRC says if receipt was recorded by midnight on 13 December the existing tax relief will apply, provided the sum assured issued is not greater than that applied for on or before 6 December.
Insurers will have until 5 April 2007 to process this business so appropriate medical evidence can be checked and an appropriate commencement date for cover settled.
HMRC says it will engage further with the industry on the broader issue of the future of PTA over the coming weeks.
Louise Colley, head of protection product marketing at Norwich Union, says: “In today’s announcement, the Treasury has done the right thing for customers, ensuring that those who applied for PTA products in good faith, before the pre-Budget report will have their applications honoured.”
Jon Briggs, protection research manager at Hargreaves Lansdown, adds: "This is festive cheer for the 100,000 or so people who had applied for PTA in good faith before the pre-Budget report, but whose policy was not completed by the life company on the day of the report."
A spokesman at the Association of British Insurers (ABI) says he is pleased the government has listened to the ABI's arguments and has acted swiftly to clear up the confusion which was caused by the pre-Budget report.
He adds: "We look forward to further detailed discussions in which we will continue to argue that tax relief on PTA should be retained, as it encourages consumers to look at getting this valuable form of protection insurance."
Chris Cummings, director general of the Association of IFAs (AIFA), says: "We will continue to work with HMRC to try and secure an acceptable outcome for the retention of tax relief on PTA and to address some of the finer details affecting changes to simplifcation introduced in the pre-Budget report."
Peter Hamilton, protection management director at Zurich, adds: "We were very keen that those who applied in good faith before 6 December were not disadvantaged because their policy had not been issued. These are typically customers where further medical evidence is needed and these people arguably need the protection even more than the healthy customer whose policy may have been submitted on the same day and issued instantly."
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