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Mass exodus as providers leave the PTA market

Royal Liver, Bright Grey, Scottish Widows and Bupa are the latest in a fast growing list of providers to temporarily pull out of the pension term assurance market following the U-turn in yesterday’s pre-Budget report.

Standard Life announced it was to be the first provider to withdraw its PTA product following the Government’s confirmation that it is looking at removing the tax relief on stand-alone PTA.

Other providers quickly followed suit with Norwich Union, Legal & General, Friends Provident, Aegon and today, Royal Liver, Bright Grey, Scottish Widows and Bupa all confirming they will be suspending sales of PTA until clarification is received from the Treasury.

Leading brokers are also reacting rapidly to the news with Lifesearch, Hargreaves Lansdown, Direct Life & Pensions and Torquil Clark Life Insurance removing PTA from quote engines and not taking any new applications.

It is not clear how pipeline business will be affected but sources at the Treasury say it is likely that applications which have been submitted but not accepted before December 6 will be affected by any removal of tax relief.

Zurich which was set to launch a PTA offering in January is thought to be discontinuing its plans for launch.

The U-turn has created uncertainty and confusion among protection providers and advisers leaving the market in limbo while it waits for a clear answer from the Treasury.

The pre-Budget Report reads: “The Government has become aware that, as a result of the flexibilities that the new pensions tax regime has brought in, life insurance policies that provide lump sum death benefits alone are being offered as personal pension arrangements eligible for pensions tax relief. This undermines the principles set out above.”

Standard Life head of pensions policy John Lawson: “It seems clear that life assurance with tax relief cannot be written after 6 December so the only sensible thing to do is not to encourage any further applications until the picture becomes clearer.”

A Treasury spokesman says: “When you introduce a system of rules, you make assumptions about how that system will work in practice. If it works differently in practice then you revise those rules. I think we have not ruled out keeping the tax relief on stand-alone PTA policies but we are consulting on it.”

Product providers will be hit hardest by the U-turn with over 15 providers having launched PTA products since A-day and spending hundreds of thousands of pounds on developing, marketing and distributing the products.

Royal Liver IFA market manager Andy Milburn says the government is not treating the industry fairly and says providers will have to decide if they need to withdraw the product from immediate sale or choose to sell it with a caveat.

Lifesearch head of protection strategy Kevin Carr says he is surprised that the Government has only just become aware of their own policies and says the industry is in limbo.

Aegon Scottish Equitable protection spokesman Mark Locke says the move is disappointing because the government was adamant that it was comfortable with funding tax relief on such plans in response to firm questioning by the life insurance industry pre-A-day.

The Report says the Government will work with the pensions industry to explore how the principles can be applied to PTA contracts in time for the Budget.

Locke says: “This does raise a huge amount of uncertainty between now and the budget. It is too hasty to say we will be pulling the product. As long as there are conversion options should be no consumer detriment.”

The Report also says any changes the Government decides to make will not affect either personal arrangements entered into before 6 December 2006 or existing types of employer arrangements.

Prudential head of protection Paul Cowman says he suspected the government would do a U-turn on PTA which was one of the reasons why Prudential did not enter the PTA market.


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