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Halo hello for pta

Amanda Newman says the new deal for pension term assurance has seen the product make a major impact in the protection market but some brokers have misgivings

Pension term assurance has been around for years but before April 6 this year it was available only to people who had taken out a pension plan. Tax relief was also limited at no more than 10 per cent of a person’s pension allowance, making it unattractive for most people.

Now these restrictions have been removed and PTA is turning heads but there have been some problems.

PTA plans are similar to traditional term insurance plans but fall within the pension rules, enabling premiums to be paid net of tax relief. This means that although quoted premiums for PTA are usually higher than standard term cover, the net premium after tax relief will be 22-40 per cent lower, depending on tax status.

Research from Standard Life shows that 70 per cent of advisers would consider PTA for all new protection clients while 17 per cent would not consider it.

The company believes that advisers who are ignoring PTA will not be able to do so for long, but its research found some advisers do not like the inability to include accelerated critical-illness insurance, the lack of joint- life options and are concerned that future legislation might retrospectively reduce tax relief.

Standard product marketing manager Mick James thinks it is unlikely that changes will be applied retrospectively and adds that most PTA providers offer a conversion option if circumstances change and leave clients ineligible for tax relief.

He says: “I find it a little bit strange that some advisers are not interested in having a conversation with their clients about PTA. I would question the kind of advice you are giving if you only consider PTA for higher-rate taxpayers or you do not consider it at all.

“How long will it be before a client says they were missold a life policy because they were never told about PTA that could have been more suitable? Making it clear to a client why PTA is not appropriate for them is important.”

To be eligible for tax relief, the person’s annual contributions to their pension plan must not exceed the lower of 100 per cent of their taxable earnings or £3,600 a year Although a person no longer needs to have a pension to take out PTA, premiums will fall within the lifetime limit for pension contributions. This means PTA will be unsuitable for people who are likely to exceed the annual or lifetime limits.

Some protection providers and advisers believe PTA will have a positive long-term impact on the protection market. Legal & General marketing director of protection Bonnie Burns thinks PTA will stimulate the protection market, with the price differential between traditional term and PTA plans leading to competition that could help to fill the protection gap.

Liverpool Victoria intermediary sales director Stuart Tragheim thinks PTA will have a “halo” effect, providing opportunities to sell other protection products as the savings made through PTA tax relief can be used to fund contracts such as income protection.

Hargreaves Lansdown protection research manager Jonathan Briggs is also positive. He says: “We think PTA is a great product. I get the feeling that the financial services industry is struggling to sell protection and we think that anything that is an incentive for a person to take out life insurance is good. We have seen a lot of interest in the product, a lot of quotes have been done, and it is replacing normal term insurance in this case.”

But Best Advice IFA Simon Palmer says: “On cost alone it is a good product but it is not very flexible because you cannot add critical-illness cover and joint life is not widely available. Clients are also terrified of the word ‘pension’ and some would rather keep the policies they have for the sake of an extra £2 a week or so.”

The fact that PTA falls under the pension rules does make the product more technical than traditional term. As well as raising the issue that it might be confusing for some clients, the blurring of the boundaries between pensions and insurance has also created regulatory problems for advisers.

The product can be sold by investment and pension regulated advisers under the code of business regulations and by general insurance/ protection regulated advisers under the insurance code of business regulations. This should increase access but Icob advisers may refuse to sell PTA rather than face the extra regulatory burdens of assessing the impact of PTA tax relief on any existing pension arrangements when giving advice.

Bright Grey product director Roger Edwards says: “Obviously, an Icob adviser has got to go through additional checks to make sure PTA is suitable for the client and some may not have the confidence to go through this. But this is a trading issue that will be picked up over time.”

But Direct Life & Pensions sales and marketing director Richard Verdin says he is not sure that the wrinkle can be ironed out and he feels that PTA will adversely affect sales of critical-illness cover.

Verdin says: “If it had been up to me we would not have had PTA. The reason that people do not buy life insurance is not to do with a little bit of tax relief. PTA has only reduced premiums and added a degree of complexity, given the segregation of Icob and Cob in dealing with advice.”

He points out that PTA i a pension contract and as Icob advisers cannot give advice on pensions, the selling and buying process is more difficult.

“There are so many more hoops for Icob advisers to jump through. Icob advisers cannot validate that the pension arrangement will not be adversely affected by the PTA contract. Some advisers are including a caveat to say the advice they may not be suitable while some Icob advisers are refusing to give advice on PTA,” says Verdin.


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