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Protection firms fear offset review

The impact of a combined Treasury and HMRC review of protection offset tax rules could see £350m of commission taken out of the market, according to Aviva.

Richard Verdin, protection director at Aviva, says the current review is likely to scrap rules that allow providers with investment management businesses to offset the costs of writing protection business against investment income and protection products will become more expensive as a result.

He adds that the ability to rebroke protection business will be severely curtailed because removing the ability to offset will lead to more uniform prices across providers.

He says: “The market impact could be significant as rising prices leave less scope for rebroking, which is estimated to be around 20 to 30 per cent of new sales. The effect of this on advisers, providers and the wider economy would be significant.

“The loss of a quarter of market commission would add up to around £350m a year, with most of this concentrated in the IFA market.”

Verdin says the timing of the protection offset review and its outcome are still not entirely certain but the most likely date for any change is 2012.

Protection Review chief executive Kevin Carr agrees that the ability to rebroke business based on cost could well disappear if firms are prevented from offsetting expenses.

He says: “If a client bought a policy in the last two or three years it will not make any sense to move based just on price. If you bought more than five years ago it may make sense but the days of switching every year could be a thing of the past.”

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