Pension term assurance
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 complete with the associated tax breaks.
While this kind of policy is no longer available to new customers, those with such policies active are still entitled to continue them, and to enjoy the tax advantages they come with.
In This Guide:
- How does pension term assurance work?
- Why is it no longer available?
- What to do if you have an active pension term assurance policy
How does pension term assurance work?
Before 2006, a sort of loophole existed in UK pension legislation that allowed customers to purchase life insurance plans as part of their pensions, thereby enjoying the same tax relief on their insurance premiums as they did on contributions to their pensions.
Providers start offering policies with this in mind called pension term assurance plans. With such policies, those on the basic rate of income tax (which, at the time, stood at 22%) could pay as little as £78 for premiums worth £100, with the government picking up the shortfall.
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.
Why is it no longer available?
Not long after the initial policy change, the government decided that allowing pension term assurance policies to be purchased was costing far too much and, in December 2006, the practice was ended altogether.
Anyone who already had an active pension term assurance policy was allowed to keep it, tax breaks and all, but new customers could no longer open one up.
What to do if you have an active pension term assurance policy
Those lucky enough to have a pension term assurance policy active can sit comfortably in the knowledge that they can continue to enjoy the associated tax relief indefinitely.
However, if you are one of those lucky people, but are also in a position whereby you feel a change to your policy is necessary, you might find yourself in the tricky situation of having to sacrifice your tax break for more appropriate cover.
If you’ve contracted any illnesses that require extra cover, if your family has grown or if your financial situation has changed, then changing your policy is probably a good idea.
Unfortunately, you won’t be able to benefit from the tax relief that came with your pension term assurance plan, but there is still a chance that you’ll be able to maintain relatively low premium costs if you shop around.
If the reason you need to change you policy is due to serious health problems, then the chances are that your new policy will be more expensive, but that doesn’t mean you need to break the bank.
Comparing life insurance quotes online with Money Expert can help you find the best and cheapest policies on the market, meaning that the blow dealt by the removal of your tax relief can be somewhat softened.