Industry warned government about controversial life insurance

Tue, 09 Jan 2007

In light of the chaos over the Government U-turn on pension term assurance (PTA), it has emerged that they were warned as much as three years ago that the life insurance product would become mainstream because of its tax breaks. The news follows an inclusion in the pre-budget report last December that the Government would review tax relief on pension term assurance .

Several inside industry sources have gone on record saying that the Government had serious prior warning that the insurance product would snowball if opened up to be sold with tax relief. According to one insider: "We asked the Treasury and HMRC to clarify the position because we could not quite believe they would open up such a product, which offers tax-free benefits, to people who would not necessarily use it as retirement planning tool."

The same source continued: "Providers felt confident they had got enough clarification from the Treasury so when the pre-Budget report said it would be removing the tax-free nature of PTA it was a bombshell. I don't think they understood what they were doing at the time."

The effects of the chancellor’s decision will be felt over time, but for now the words pension term assurance are synonymous with chaotic restructuring.
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