U-turn on life insurance branded 'astonishing'

Mon, 11 Dec 2006

The government may pull the plug on a money-saving form of cheap life insurance, reviewing rules that provide generous tax breaks for pension term insurance policyholders.

Pension term assurance, or PTA, has been triumphed as a tax efficient loophole for providing life insurance cover. The more flexible rules regarding pensions were only introduced in April. The tax breaks, according to life insurance broker Lifesearch, have attracted over 100,000 people to PTA, looking for heralded 40 per cent reductions.

The news, introduced in the pre-Budget report, is that pension tax relief used in this manner undermines the intention of the rules - encouraging people to invest in pensions.

Changes to the rules will not affect those policies already instated, but experts called the U-turn astonishing, particularly in light of the enormous level of under-insurance in the UK.
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