By ANTONY IGNATIUS 14/07/2006
One of the less prominent benefits of the new pension rules introduced in April this year (‘A’ Day) is greater flexibility to buy life cover within a pension. This means that Pension Term Assurance (PTA) is now a viable alternative to conventional life cover, especially with the bonus of up to 40% tax relief on the premiums. After a slow start an increasing number of life companies are now offering these policies, which should result in more competitive premiums.
| "Higher rate taxpayers should enjoy a 40% saving on the gross cost..." |
Technically, PTA contracts are regarded as being pension policies and so the premiums are entitled to the same tax benefits. For higher rate taxpayers that should mean a 40% saving on the gross cost. Unfortunately, not all the news is good; gross premiums tend to be higher than for an equivalent conventional policy and for people with large pensions and/or PTA policies there is a risk of exceeding the Lifetime Allowance, which could lead to a 55% tax charge on part of the benefits. Nevertheless, as the table below shows, the savings can be worthwhile.
Term |
Level Term Premium |
PTA Gross |
PTA 22% Tax |
PTA 40% Tax |
Monthly Premiums based on male non-smoker age 40 nbd* £100,000 assured. |
10 years |
£9.85 |
£11.22 (+13.9%) |
£8.75 (-11.2%) |
£6.73 (-31.7%) |
20 years |
£11.85 |
£12.92 (+9.0%) |
£10.08 (-14.9%) |
£7.75 (-34.6%) |
Monthly Premiums based on male non-smoker age 50 nbd* £100,000 assured. |
10 years |
£21.25 |
£23.12 (+8.8%) |
£18.03 (-15.1%) |
£13.87 (-34.7%) |
20 years |
£29.75 |
£31.32 (+5.3%) |
£24.43 (-17.9%) |
£18.79 (-36.8%) |
| Based on best rates available as at 14/7//06. *nbd = next birthday. |
When considering PTA, you should ensure the new insurance company will convert the cover back to a conventional policy if the total of the sum assured added to your pension pot takes you over the Lifetime Allowance. You should also check that the insurance company does not require any further underwriting in doing so. PTA is not suitable if you require cover after age 75 and, when rebroking, you should never cancel an existing policy until you have been accepted for the new one and are happy with the terms. Also bear in mind whether your income will continue at a level that makes tax relief a worthwhile saving.
| "It's easy to neglect life cover...most people do not take out sufficient cover..." |
It’s easy to neglect life cover and, in our experience, most people do not take out sufficient cover to protect them and their family from adverse circumstances. To check whether you have adequate cover, use our Life Cover Calculator.
To find out more and see whether you can benefit from PTA, please call us on 020 7189 9990.