Pension Term Insurance
If you have an old Pension Term Insurance policy then this section is for you.
Until the end of 2006, pension term assurance was available as a form of life insurance that could be bought as part of a pension plan and enabled tax relief to be obtained on the premiums.
While you can no longer purchase this kind of policy, if you have a Pension Term Insurance policy that is still in force then you are entitled to continue with it until the end of the policy term and receive tax relief on the premiums.
Before April 2006, legislation restricted those purchasing such policies to a maximum premium value of 10% of the overall value of their yearly pension contributions.
After this, there was effectively no limit on the size of the pension term assurance policy a customer wanted to take out, allowing for dramatic tax relief for those lucky or smart enough to do so. It was also possible, at this point, for customers to take out a pension term assurance policy without making any pension contributions whatsoever.
Not long after the initial policy change, the government decided that allowing pension term assurance policies to be purchased was costing far too much in terms of tax relief, and in December 2006, the practice was ended altogether.
Where a pension term insurance policy was applied for on or before 6 December 2006 and the insurer processed the business no later than 31 July 2007 it continues to benefit from tax relief on the premiums.
However, such ‘protected policy’ status is lost where a variation is made to the policy outside its original terms so as to increase the sum assured or lengthen the term of the insurance. The exercise of a contractual option does not vary the policy and will not result in the loss of protected policy status.
What you should check
- Date of issue – was the policy issued before 31 July 2007?
- Do you still have a need for life cover? If so do you need protection beyond the term of the existing policy?
- Are you a director or senior employee who could put in place a Relevant Life policy to continue obtaining tax relief on life assurance premiums?
- Are you in good health?
- Are the premiums net of tax relief still cost effective when compared to current premium rates?
- Does you want to alter the policy in any way? – this will result in a loss of tax relief at your marginal rate (20%, 40% or 45%)
- Are there any issues with the Annual Allowance? This would be the case if you were paying very significant premiums for the Pension Term Insurance or you are subject to the Money Purchase Annual Allowance.
- Are there any issues with the Lifetime Allowance? – The sum assured will form part of your Lifetime Allowance on your death
- Have you applied for Enhanced Pension protection or any form of Fixed Protection? If you have not stopped your premiums to the Pension Term Insurance then the protection will be null and void.
Links to more information about older pension contracts
- Retirement Annuity Contracts
- Section 32 Buy out Plans
- Guaranteed Annuity Rates
- Guaranteed Investment Rates
- Protected Tax Free Cash
- Hybrid Pension Schemes (or Underpins)
- With Profits Funds
- Money Advice Service Pensions and Retirement
- If you need personal financial advice on Pension Term Insurance then I am happy to introduce you to Flying Colours Life who have access to independent financial advisers throughout the UK
This information does not constitute personal advice and should not be treated as a substitute for specific advice based on your circumstances.
Information given relating to tax legislation is based on my understanding of legislation and practice currently in force. Whilst I believe my interpretation of current law and practice to be correct in these areas, I cannot be responsible for the effects of any future legislation or any change in interpretation or treatment. In particular you are warned that levels of tax and tax reliefs are subject to alteration and, in any case, the value of such reliefs and benefits may depend on an individual’s circumstances.
If you are in any doubt as to whether any course of action is suitable for you, then you should discuss the matter with a suitably qualified independent financial adviser or other specialist.