Pension Term Assurance
Pension Term Assurance (PTA) is a type of term life assurance policy that allows tax relief to be claimed on the premium payments at the policyholder's highest or marginal rate of tax. These policies are no longer being marketed.
The rules governing pension term assurance were changed on A Day, 6 April 2006, when the new 'simplified' pensions' regime came into force. However, they were changed again in the Pre Budget Report on 6 December 2006.
Pension term assurance policies taken out up to the date of the Pre Budget Report are being allowed to continue but no further PTA policies are being sold. Pension term assurance has, therefore, joined a long list of volte faces by Chancellor Gordon Brown.
Was / is pension term assurance too good to be true? You did not need an existing pension to buy pension term assurance, although the policies were potentially unsuitable for non- taxpayers because the premiums are slightly higher than for standard term assurance. Premiums paid to purchase a PTA policy count towards your pension contribution limits.
You did not need a pension or have to start one in order to take advantage of pension term assurance and the tax relief on the insurance premiums were the same as that for pension contributions, meaning a saving on every £100 of premium of £40 for higher rate taxpayers and £22 for those on the basic tax rate.
Anyone under the age of 75 was allowed to contribute to a pension term assurance policy with the maximum contribution per annum being 100% of UK earnings or £3,600, whichever is the higher. There was no limit to the amount of pension term assurance that may be held, but tax relief was only given if the total of the pension and pension term assurance contributions are below the annual allowance (£215,000 in 2006/07). All lump-sum benefits paid out will count towards the lifetime limit of £1.5m (2006/07).
The amount of life cover taken under a PTA policy, if you have one, should be included with the total pension funds you hold in calculating whether you are within the lifetime limit. Any amount over this will be subject to a tax charge of 55%, payable by your beneficiaries.
There are no add-ons to pension term assurance, such as critical illness cover or family income benefit arrangements, often a feature of standard life insurance.
According to the Financial Services Authority, pension term assurance was sold without the need for accompanying financial advice. However, you should always seek independent professional advice on financial matters concerning protection and retirement.