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Focus on Protection

The elephant in the room can no longer be ignored.

What started as a baby elephant is getting bigger fast and that is the assignment of death benefits in pension term assurance.

It is a complicated subject to choose for the blog this week but one which must be tackled if only in a bid to get HM Revenue & Customs to clarify its position on this.

Syndaxi Financial Planning managing director Robert Reid laid the issue on the table at MM Live up in Manchester last week. He called for HMRC to clarify its position on the assignment of death benefits in trust on PTA policies to avoid misselling.

HMRC previously clarified its position on allowing mortgage providers to be assigned the rights to death benefits of PTA policies in a pensions tax simplification newsletter published in the summer.

Legislation from HMRC had been unclear over whether customers purchasing mortgages where the provider required them to take out life insurance with the loan could take out PTA policies or were restricted to ordinary term life cover.

The newsletter said that mortgage providers and banks can be assigned the death benefits of pension term assurance policies which will allow customers to purchase PTA products and the move was broadly welcomed by providers and advisers.

But the newsletter did not mention whether PTA policies could be sold in the shareholder protection market.

HMRC¹s response to my request for information on whether a PTA policy could be sold in this market was: ³We are not clear how shareholder protection policies would work within a registered pension scheme.²

HMRC then listed a number of confusing and contradictory rules which even temporarily flummoxed an expert that I sent them to for translation into plain English.

In theory, it seems PTA could be used for shareholder protection but it is unclear how the legal agreements would work in practice without running the risk of breaking the pension rules.

The confusion surrounding what may seem a small point has repercussions of a wider nature. Namely, that the pensions manual is confusing and unclear in places.

Royal Liver chartered insurer Mark Davies says this highlights the fact that there are a number of areas in pension legislation which are difficult to interpret.

And Reid sums it up concisely, saying: ³HMRC need to ensure that there is some serious hole plugging done in the manual if we are to avoid misselling PTA.²

HMRC needs to address the elephant before it outgrows the room and becomes a mammal of misselling proportions.

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