Will the Budget finally kill PTA?

Considerable doubts linger over whether the Treasury will allow pension term assurance with tax relief to exist after the Budget next week, but advisers and providers are nonetheless hopeful some form of the product will remain.

The Treasury revealed it was withdrawing tax relief on PTA policies in the Pre-Budget report in December, but since then rumours have surfaced suggesting the Treasury may reach a middle-ground and allow PTA to continue with a reduced sum assured for consumers who self-certify they have a pension provision.

But Mark Twigg, account director at Cicero Consulting, says no decision has yet been made on whether the Treasury will scrap PTA, maintain it as it is, or preserve it in a different format with a reduced sum assured and a link to pensions.

“Uncertainty remains over whether the Treasury’s intentions are to keep PTA going. I would say they will keep it, but whether they can keep it in its current form is another issue. I think tax relief will go ahead because the government needs to do something that is face-saving and which prevents an industry backlash,” says Twigg.

He believes the Treasury’s main concern is clients who already had life cover were re-brokered onto PTA and advisers were therefore not extending the scope of who was covered.

“The Treasury wants to ensure tax relief benefits are spread across the population,” adds Twigg.

Kevin Carr, head of protection strategy at Lifesearch, says he is hopeful PTA will continue, even if it does have a reduced sum assured and a requirement clients must self-certify, but he is unsure whether this will be the case.

“I really don’t know what is going to happen. I won’t be surprised by anything the Treasury does, given that they introduced PTA in the last Budget and did a u-turn six months later,” says Carr.

He also hopes the Chancellor will clarify whether existing PTA clients who wish to exercise the guaranteed insurability option (GIO) can do so without incurring the loss of tax relief.

Mick James, protection marketing manager at Standard Life, says: “I’m uncertain about whether PTA with tax relief will continue because the Treasury is playing its cards close to its chest. The feedback we have received indicates the Treasury is looking to find a way for PTA to re-emerge, but it is anyone’s guess what it will look like.”

If the Treasury does allow PTA to remain with a limited sum assured, James believes it would be a reasonable compromise and Standard Life would look at re-entering the market as soon as possible.

Roger Edwards, products director at Bright Grey, says the Treasury might introduce a requirement for PTA to be linked to pensions, which would limit who could sell the product.

“ICOB advisers are unable to sell full pensions, so if PTA is linked to pensions there will be a lot of advisers who were able to sell PTA last year but who won’t be able to anymore,” adds Edwards.

He hopes the Treasury will not re-introduce the product with a sum assured which is so high as to raise concerns again and lead to another u-turn in a year’s time.

Peter Chadborn, principal at CBK, says he is not bothered about what happens to PTA anymore, as long as the outcome is not ambiguous.

“The Treasury has been back and forward so much that I’m not bothered what happens. I just want the outcome to be full and final.”

Chadborn points out his firm did not sell any more life cover when PTA was introduced and the only reason he liked it was because it gave the industry a reason to talk about protection.

“If PTA comes back in its previous form that would be fantastic. If it comes back in a different format that would be fantastic too, as long as there is no ambiguity,” he adds.

Chadborn warns introducing self-certification into PTA could be “messy” because ICOB advisers do not review their clients’ pension arrangements and the onus would therefore be on the client to self-certify, which he says “is not necessarily a good thing”.

If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7034 2680 or email emily.perryman@incisivemedia.com.