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Stakeholder will kill off term cover, claim firms

Protection providers are claiming the new rules for stakeholder pensions

could kill off the pension term insurance market.

According to Swiss Re&#39s Term Watch report, the protection industry sold

about 50,000 policies last year but it fears this figure could plummet

because the stakeholder rules make the policies practically unworkable.

The old rules for PTA permitted regular premiums of up to 5 per cent of

relevant earnings and allowed for the policies to be run independently of

the pension plan.

The new rules link PTA premiums to pension contributions, demanding

premiums should be no more than 10 per cent of the contributions, which can

be paid on an ad-hoc basis.

This prevents protection providers collecting premiums on a regular basis

as they are forced to to wait until after the tax year is completed to

determine how much in premiums can be paid to the term insurance policy.

Swiss Re technical manager Ron Wheatcroft says: “The new stakeholder rules

are making term insurance too complex for many providers. The amount of an

individual&#39s pension payments going towards their pension term insurance

may have to be unscrambled at the end of the year if most individuals opt

to pay irregular premiums.”

Scottish Widows revealed it is likely to withdraw from the market after stakeholder comes into operation.

Scottish Widows pensions strategy manager Ian Naismith says: “It is too

risky. We are unlikely to have a pension term insurance product after April


Permanent Insurance sales and marketing manager Rod Macdonald says: “The

product is already greatly undersold and now the new rules are making it a

buy now while stocks last situation. The market has been knocked on the



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