A lot of people are still clinging to the hope a form of pension term assurance will continue after the Budget, but there is a strong possibility the product will be scrapped and it may be wise to expect the worst.
In the immediate aftermath of the PTA u-turn in December, it was reported the Treasury had sent a fax to providers saying it was “appalled” at the take-up of life cover with tax relief, while the Pre-Budget report itself stated the government had become aware the products were being offered as standalone products, which undermined pensions principles.
Providers may stamp their feet and say they tried to make it clear prior to the A-Day changes that PTA would be sold as a standalone product, but there were others who seemed to realise the Treasury may have made a mistake and who were wary of entering the market.
Paul Cowman, who resigned last month as head of protection at Prudential, says one of the reasons the insurer did not enter the PTA market was it had concerns about the possibility of the Treasury later removing tax relief.
“We had concerns about where the Revenue was going and whether it had over-commoditised the product and would later withdraw it. We said for sometime that we had concerns and we feared a u-turn might happen,” says Cowman.
Could the Treasury could use these fears as the justification it needs to scrap the product and say that if some people had fears about what would happen, others should have too?
Advisers were also wary about recommending PTA, as research from Standard Life last September revealed just 43% had recommended the product since A-Day over other types of cover.
Jason King, managing director of Torquil Clark Life Insurance, was surprised the Treasury ever allowed PTA to be relaunched because he realised the product would become one of mass appeal and it therefore came as no shock the government did another u-turn.
Gordon Craig, director of Asset Management IFA Ltd, said back in August 2006: “The actual cost of PTA, i.e. before tax relief, is more than the cost of straightforward term assurance, although obviously, with tax relief, the cost is less for the client. Is this some sort of scam by the insurers to increase revenue from life assurance?
“If only HMRC knew that it is they that are paying the extra premium!”
HMRC has clearly discovered it is paying the extra premium, so all the industry can do is keep its fingers crossed and if the news is bad, cope with it the best way it can.
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
Spent 56 years at Schroders
Warns on profits
Hargreave Hale seeking legal advice